This guest post is by Tisha Kulak, who often writes about student credit cards and responsible credit card use. Here we tackle the issue of when and how we should teach our kids the use of credit and credit cards.
Surely parents experience anxiety over the fact they are sending their children out into the world of college alone. They worry that their kids will need something that they cannot provide while far away and they worry about how their kids will be exploring their new environment. There is also the fear that their children will go overboard in spending if given a large sum of money or a credit card. Many choose not to obtain a credit card simply because of that fear.
The only way a student going off to college is going to learn responsibility is if they are taught responsibility. By simply avoiding a credit card now, credit issues later may become a problem. College is a prime time to teach such financial strategies. It is a time when young adults, while still off on their own, are generally still considered to be under the parental wing. Parents are typically the prime example whom kids will follow so it is important that parents pave the way for responsible credit behavior.
Communicate with your child about debt, credit and credit cards.
There are ways to ensure your college student practices responsibility with a credit card. You simply cannot hand over the piece of plastic and not expect trouble. You must take the time to communicate how the credit world actually works. Be adamant about who is responsible for paying the monthly bill. Make certain they understand what fees are associated with the card and what interest is and how it works, in that it adds to the amount of the overall bill each month. Teach the student how to maintain a budget sheet and how to track expenses properly. Explain to them the consequences of not paying a bill in full each month. And “consequence” is the operative word here — by showing your child that there are serious repercussions to using credit inappropriately, he or she learns some valuable lessons early.
Set a firm limit on your child’s credit card.
Once it is understood how the credit card works, a limit should be set on the credit card. Starting at a low amount of $250 would suffice in the beginning. Outline the rules for spending appropriately, such as what constitutes an emergency purpose. If need be, make an actual list of what is allowed so there is no arguments if the bill comes in with irrelevant purchase charges. When the bill does arrive, go over every part of it so everyone can see in black and white, the reality of credit cards.
College students should seek mentorship and support.
If you are a college student reading this, good advice would be to learn and seek information. If you have credit cards in your own name, seek out someone at your college, perhaps your business math professor, and ask them to sit with you and review your finances. Once you get in over your head, it becomes harder and harder to rise above the financial disaster that credit cards can lead to if they’re used irresponsibly. No one encouraged me to go through the learning process before I ended up acquiring credit cards. It is now 15 years later, and I am still paying for that rental movie and the daily coffee I had while I was in school.
Denial and avoidance won’t help.
Avoiding the situation is not beneficial to anyone. If obtaining a credit card for emergency purposes is something you are considering, whether for yourself as a student or as a parent of a student, do your homework. There are many credit card options available for students in colleges. Compare benefits, interest rates, introductory offers, as well as consequences for late or missed payments. It may be especially important for college students to look at the benefit rewards packages that are available. A good example is a credit card offering X number of frequent flier miles towards free flights for college students living far away from home. Benefits like that add up over time and in addition to a huge lesson in responsibility, students can also end up with a lesson in saving money.
So how about you: how do you plan to teach your kids about debt and credit?
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{ 19 comments… read them below or add one }
Excellent article and much needed practice. I wish my parents would have talked to me about credit card debt and the issues and problems it can cause. My parents were born during the depression era and were raised without credit debt at all. So their experience of it was pretty void and limited, and credit cards were for the “elite” until around the late 70’s early 80’s, so I was never taught anything about it.
Unfortunately I learned all my lessons about credit card debt the hard way.
I feel like this article might be more aptly targeted to parents of High School students. In this situation a parent has daily contact with the student who, typically, will still live at home. This is the prime time to teach these lessons. I feel that having a checkbook and a credit card, both of which I was responsible for, in High School taught me a lot of lessons before I could do serious damage to myself outside the purview of the home. I guess it all hearkens back to the fact that you are never too young to learn about money.
The best service to help college students in debt is Credit Card Zappers.
They were able to take over $400 in junk fees off my bill.
For us it is starting at home with monthly budget meetings. What we did, what work etc.. This is in addition to discussing debt.
They know that we are working to pay back all of that debt, due to overspending. They see real-world reasons why not to use Credit Cards. They also all know if they do they will pay their own way out!
I think the most important thing to teach kids is that if they borrow money they always have to pay it back. This should apply to everything – be it credit cards or $2 borrowed from a friend. The corollary of this rule is that borrowed money cannot extend one’s purchasing ability because one will always have to pay it back. And with interest. This should be taught in childhood.
Another thing that should be taught in childhood is that there are things mommy and daddy cannot buy because there are things that their parents can’t afford. Children should be taught that their parents live within their means and that they should do it too. Also, that if their friends have something, it doesn’t mean they must have it too. It’s perfectly fine to explain that there are things that are too expensive.
Otherwise, a simple explanation of how the interest on a credit card works and how it compares with the interest one can get in a bank is useful. At least for those who are math-challenged.
I don’t think “My parents never taught me about credit card” is an excuse. I grew up in the Soviet Union, and over there it also was cash-only. So much so that people got their salaries in ruble bills and went to stand in line to pay bills by cash. Yet it didn’t take either me or my parents (who couldn’t even speak English properly) any time to figure out that credit card bills have to be paid in full or we’ll have to pay high interest. This is really common sense.
I agree with the article…knowledge is power and it’s better to be informed at an early age than practice credit avoidance.
Kitty has said it well.
I have missed giving these lessons to the elder girls. Thankfully they are frugal with their allowances.
I still have time with the younger children. I am compiling a list of lessons.
Your post and Kitty’s comments come in real handy.
I wasn’t really taught much about credit cards and debt; it was stuff I learned on my own through my own readings. My family and friends don’t really go through the basics of finance — though we are open about telling each other stories about how we are doing financially, some general strategies and investments we’re dealing with, and so forth. I guess I’ve learned primarily through “osmosis” or absorbing the everyday stories I garnered from my family — it was just not in “lesson form”.
These days, I’ve been teaching my kindergartner about money through flash cards and work books. Seems like there are a lot of tools available today for kids to utilize. Just a lot of resources exist out there which we didn’t have when I was that age! So I’m picking a few up from Amazon at some point and doing some afternoon lessons with my kids. It’s been fun!
I’m gearing up for my lesson plan starting with my “Intro on Coins and Currency”. đŸ˜€
Personally, I never really had trouble with credit card debt until I moved across the country, leaving my former job behind. This is despite the fact that I didn’t even get a credit card until about a year ago.
As long as I had a steady income, I would always pay off the entire balance each month. Maybe that is due to the fact that I had been using a debit card for several years, though? I suppose that even though it wasn’t an actual credit card, there is enough similarity that I’d trained myself not to use it unless I had the money to pay for it.
This is a must I think. When I was younger no one taught me how important credit was. I have been struggling with credit since I turned 18. Now 25 I still have bad credit haunting me. Its all because no one taught me how important credit was when I was in school.
Good morning:
Thanks for contributing this post to this week’s Carnival of Family life, hosted at Health Plans Plus!
Great advice. I would prefer, however, that my kids learn to live as I do: Cash only. I eliminated credit cards many, many years ago and have never regretted it.
Be sure to stop by the Carnival tomorrow and check out the other wonderful entries!
JHS
Colloquium
I think starting in High School is a great idea. Maybe with one of those secured cards. That way the student has to put out some of there own money to start with and no damage can be done, and then work up to a regular card with a low credit line. They need to have more personal finance classes in High School to avoid many problem when moving on to college.
Because I’m a divorce attorney I see couples come into the office many times over financial troubles. A lot of times the parents don’t know how to manage their finances so it’s real tough for them to lead by example and teach their kids how to manage their finances when they can’t even do it. As parents we really have to take more responsibility.
I agree with what your saying and in this country credit is more important than money itself. If you don’t have credit you have to pay cash for everything. If you have good credit you can pretty much buy anything you want, even things you really can’t afford. For most Americans the equity in their home has been their piggy bank for the last 20 years as long as home prices have been appreciating. Now that values are declining a lot of homeowners are in a world of trouble.
Great post! This article should be on the kitchen refrigerator of every household.
As parents, we should teach your children healthy habits and attitude towards money. Teaching them about money management will make them responsible adults in the future. They will have a better chance of being successful, they’ll learn to make choices, become more independent and will know how to set and achieve financial goals.
Everyone, young and old, should be aware of the importance of financial responsibility. Many adults struggle to sustain a good budget or base their entire focus on credit repair, forgetting about the little ones who rely on them the most. I am guilty of this as well.
I’ve read some articles on ways to teach kids money management and responsible money usage. This was definitely a wake-up call for me. It is our responsibility to educate our children on money management. If they can be trained to use money responsibly during a recession, they will be much better off in this world we live in, especially when our economy decides to turn around. I used to have credit problems and desperately needed credit repair. I don’t want my children to go through what I’ve gone through.
We, as parents, can save our children from future financial hardships if we take the time to properly equip them with the skills and knowledge of the importance of financial responsibility. There are too many kids that go out into the real world without understanding the value and importance of money. I must figure out a way to use vital aids to teach my kids the consequences of misusing money, like using credit cards irresponsibly. Somehow, I had managed to get into a lot of trouble just by one credit card. I had turned to credit repair services to get myself back on track, but I must say, it was not a pleasant ride. I don’t want any credit issues to be the beginning mark of my children’s independent lives.
Saving money, having a budget and learning about credit at a young age is something that kids need to learn before things get out of control in young adult years.
I think teaching our kids how to handle money is a very important way. With them having a credit card, they need to be responsible with his/her new credit card and ensure that his payments will be made on time to establish a good payment and credit history. Your kids will also want to keep his credit card charges to a minimum as well!
I don’t understand the premise: why do kids have credit cards? They are not responsible enough to make financial decisions. This will lead them to them defaulting. You can’t just forget a debt, but you will find some kids who think that a credit line is free money.
I would start with giving kids cash, not credit cards. When you run out, you run out. No risk of default.