IOU University

Credit. As an adult, you need to have credit. As a young adult, you need to learn how to use it wisely. But it’s hard to build good credit when first, you can’t officially have a credit card until age 21 (unless you have a co-signer or can provide proof of income) and second, if once you get your first card, you are tempted to use your awesome new shiny plastic for everything you could possibly want!

The government has tried to limit credit card issuers from irresponsible lending practices with the CARD Act but an article in the Wall Street Journal this past week has noted that college students are still a target for their aggressive tactics.

What’s a parent to do?

If you have a college bound teen, you need to warn them about the onslaught of credit card applications they will receive via email as well as marketing pop-ups on their Facebook and other website pages. Explain to them that they should never co-sign with a friend for a credit card…it could be destroy their own credit and maybe a friendship in the process. If you are giving them a second card on your own account, set the rules up front on what and when they are allowed to use the card (i.e. for emergencies only). Some credit card companies (like American Express) will let you set a separate credit limit for additional cards but call their customer service to get all the details since each company has different rules.

Your best defense is to start talking about the advantages and dangers of credit well before your children head off to college. Use everyday activities to talk about credit. For example, when you take your children shopping and they see you swipe your credit card take the time to explain the mechanics of what happens next. Tell them that the credit card company (VISA, AMEX, DISCOVER, etc) will give the store the money now and then at the end of the month the credit card company will send you a bill. If you don’t pay the bill on time and in full, explain that they credit card company will charge you interest. The new credit card statements show how much your purchases will actually cost you if you don’t pay in full and shows you how long it will take to pay off – yikes!

Most adults get themselves into trouble with credit cards but honestly it’s not the credit card companies fault. I guess you could try to blame the media for making us the ultimate consumers who NEED to have the latest gadgets. However it’s really that we have lost our ability to identify what we need vs. what we want.

Needs vs. Wants. It’s a basic financial concept. Teach your children to know the difference and they will learn to use credit wisely naturally since they will understand how to live within their means.

For more information on credit topics for your kids and teens please check out the Financial Coach for Kids & Teens.