Kids and Credit

Growing up, I was taught very little about credit. I didn’t understand anything really. I knew my mom had credit cards and that she paid them off in full each month, but I didn’t really understand why she did this or anything else like how you even get a credit card. How student loans really worked. What responsibilities came with borrowing money.

I, like most, received my first credit card while in university. I was waiting for a class to start when the credit card company approached me and asked if I was interested in signing up for a pre-approved card and get a free water bottle for just a few minutes of my time. Free water bottle sold me. That, and the pretty card with my campus printed on it. In less than five minutes I immediately felt like a real adult. I couldn’t wait to break in my new card!

I had access to both student loans and lines of credit for school but had no concept of what power I actually had access to. I spent every cent that was allotted to me whether I needed it or not. I mean I was going to graduate and pay it off, eventually I knew that… I had zero understanding of interest rate or the amount of damage I was doing to my future by borrowing more than I needed. Though I can say I’ve come a long way, including finally having a payoff plan to be debt free in less than 50 months, it took a lot of hard lessons. Lessons I hope to pass onto my child.

Learn to Budget

Though we’ve already set up an education savings and investment account for our little one, if what we’re able to contribute isn’t enough for her education she will need to come up with the difference. Ideally she will be able to balance work, school and extra curricular activities but if she can’t, having a job will be the last priority while in school, she may need to borrow money.

I think student loans can be a great tool if used property (note: I have zero understanding of how US student loans work, I’m only talking about Canadian). If the time comes and she needs to borrow money to top off her education, budgeting will be of utmost priority. Budgeting is a tool all young adults require, but are often not taught. I plan on starting her on a budget very young so that if she does end up relying on borrowed money for post secondary she is aware and in touch with her financial situation. Just because money may be given to her doesn’t mean she needs to use it.

Understanding Credit

Credit is confusing. There are so many types, each with their own set of rules. I plan on sitting her down well before she’s old enough to obtain credit and explain what it is. Explain interest rates, how they’re calculated and the importance of borrowing as little as needed and to treat it with respect.

Using Credit

After she understands credit it is important that she learn to use it, properly. Make sure she opens a well researched credit account, not one that gives away free water bottles. Teach her the importance of paying off the balance so she never pays interest and doesn’t abuse the power given to her in the form of a plastic card. She needs to understand when it makes sense to use use credit and when not to.

Credit is confusing which is usually why people end up in trouble. With some clarification and early education I’m sure I can help our daughter prevent some of the mistakes I made!

How do you discuss credit options to your kids?

Comments

  1. I had my school paid for but ended up signing up for there campus credit cards as they were automatically approved. I had two major department store cards along with a MasterCard. I learned early on on whem I was short of cash to buy friends. “Stuff” on my credit card and have them pay me in cash . At the end of my first year

    • Oops…I was in debt after my first year of school but my parents helped me pay it off and I haven’t credit card interest since! Plan to teach my kids to be cash only!

  2. I fell for the credit card saga in college…hell yah…. I’m now an adult syndrome, but things got pretty ugly real quite. No one ever discussed money with me. Hopefully things will be different for my daughter, because I go thru great lengths to teach her about the worth of a dollar….yes….I think she’s already bored.
    Petrish recently posted..Five Gifts of DebtMy Profile

  3. Love this, Catherine! It breaks my heart how many kids head to college and fall under the spell of credit cards. They do make you feel like an “official” grown-up. And there is nothing wrong with credit cards when you used responsibly but most college kids don’t know what that means, even if their parents did use them wisely. They most likely never explained why. I’ve already starting to girls about credit cards and I actually plan to give them in high school so they can learn how to use them when I’m still around to guide them (even if they find me annoying but I figure that’s just because they are teenagers! LOL!) I want them to leave home knowing how to handle credit cards in a responsible manner. I don’t want them to fear them, but respect them and use them wisely. Great post!
    Shannon @ The Heavy Purse recently posted..Couples Financial Therapy: 4 Keys to a Happy MarriageMy Profile

    • That’s just it, they have zero sense of responsibility! I’m sure you’re girls will be very diligent about using them properly.

  4. I don’t have kids, but when I do it will be a top priority to sit down and tell them the realities of credit cards and credit. I think too many teenagers and college students have not had an unbiased conversation with a parent/mentor about the realities of credit cards – the good and the bad.

  5. This is so important! Credit card companies target kids going off to college and get them sucked into messes. It’s important for kids to know about credit and the importance of it. I never really learned until after I had to pay off $5,000 of credit card debt.
    Fig @ Figuring Money Out recently posted..Opening A No Fee IRA With Scottrade | Scottrade ReviewMy Profile

  6. Hey Catherine, I think your mom was setting a great example by paying her card off every month, many parents set poor examples with regard to credit cards. I don’t remember my parents ever using a credit card, think they had them but rarely used them.

  7. Our kids are too young to understand it yet.
    I don’t think my parents talked to me too much about credit, but I remember my mom warning me to be careful when I got my first credit card at 18. It was a Lazarus store card and my limit was $100! =)
    Holly@ClubThrifty recently posted..How Snowpocalypse Cost Us Almost $1,500My Profile

  8. My dad taught me about credit, but I didn’t listen to his advice very well. When I went to college, I just lost control. It cost me a lot of money, but when my son is old enough, I will teach him the right way to handle cards. I just hope he follows my advice.
    Grayson @ Debt Roundup recently posted..The Personal Finance Rap Video….Yes, I Said Rap!My Profile

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  1. […] at Plunged in Debt shared her plans to teach her daughter about credit cards in Kids and Credit. Kids grow up thinking those cards are magical and a symbol of adulthood and freedom. Like […]

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