The state of Illinois recently passed a law prohibiting credit card companies from offering free giveaways on college campuses to induce students to sign up for their cards. This raises the issue again of what we need to do as parents, grandparents, and as a society, to teach our young people about the proper use of credit. Several years ago I saw a startling 60 minutes story which focused on college students that were filing for bankruptcy. Imagine starting out your adult life with a bankruptcy before you've even finished college!
Congresswoman Slaughter's floor speech on her amendment to reduce student debt. Her legislation to protect college students from excessive credit card debt and bankruptcy passed, and was included as part of H.R. 627, the landmark Credit Cardholders Bill of Rights
While we may all be shocked to hear stories about college students thousands of dollars in credit card debt and on the brink of bankruptcy, I wonder why we are all that surprised. Most public schools offer little if any training on the subject of personal financial management. My daughter, who graduated at the very top of her high school class, had no idea how to reconcile a checkbook. Rest assured, she could solve for the total area in square feet of the pyramids, but was not able to keep a checkbook ledger straight. It is this kind of unpractical approach to education that leaves our children lacking the basic preparation necessary to manage their financial affairs as adults. I am all for academics; reading, writing, and arithmetic, but what about applying some of this book knowleldge to real-life situations? This week I want to address some practical ways that you can begin to teach your teenagers about credit before they make some very life altering mistakes.
My wife was very concerned many years ago when I decided to purchase a handgun. She was absolutely convinced that our son would find a way to remove the firearm from the safe I had purchased and end up shooting someone or himself. I saw no way that a five-year-old boy would be capable of accomplishing this, but I had come up with a solution that made both my wife and myself content that there would never be a problem. I took my son with me to the shooting range and taught him how to handle and respect firearms (just as my father did with me). After a couple of trips to the range, he learned how powerful (and loud) a firearm is. Needless to say, he never went anywhere near my gun safe. Sometimes hiding things from our children can cause them to have a natural curiosity. While this may not be a perfect analogy to credit cards, I think there is a parallel here somewhere.
My son is now seventeen, not five. I just gave him a debit card with his name on it. You might be wondering if I am crazy, but I thought it was time for him to start learning about the proper use of credit. Better to have him learn with me and when it involves a debit card with only $100 space on it rather than to end up owing thousands of dollars on credit cards he obtains as a young adult. As soon as you think your teen is ready for it, I would begin to immerse them in the world of finance. The basics of managing a credit card and a checking account cannot be learned early enough. If your child is not eighteen, you can obtain a debit card in your own name and add them as an authorized user. They are over 18, you can assist them in obtaining a debit or credit card in their own name. While a debit card is a good training ground, ultimately they should have a couple of credit cards. Ask your bank about checking accounts and debit cards for teens, many have special programs designed for this very purpose. Once a young person turns 18 they can begin building their own credit score. Many employers now pull credit on prospective employees. So, even if your young person does not plan to borrow money anytime in the near future they may still need a good credit score to get a job after college.
On the subject of credit, a growing trend in idetntiy theft is to steal the credit file of teenagers. Yes, your teenager has a Social Security number and if it gets into the wrong hands can be used by to run up tens of thousands of dollars in credit card debt. I have read stories of identity theft involving children even as young as 10 years old! It is for this reason that you should also take some time with your teen to explain the process of obtaining a copy of their credit report and also the wisdom of purchasing an identity theft product. Many identity theft plans allow you to add your children for free and this includes up to the age of 22 if they are a full time college student.
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Helping you (and your teen) make the most of God’s money!