Managing credit cards is considered by many to be the most important lesson young adults need to learn about managing their money. While there are a number of essential financial skills teens need to learn for their financial well-being (see the Steps to Success Teen Guide), I agree credit card knowledge and management is a vital part of the overall education required in today's financial world. Our youth can't manage their money effectively if they are in severe credit card debt.
Today we have a guest post from Consolidated Credit's Seth Turner. Seth is a Financial Consultant in the beautiful city of Boise, Idaho. He is happily married and has two children, ages ten and fourteen. Thank you for your contribution Seth:
In today’s hectic financial climate there are a lot of potential pitfalls for those who decide to use credit, especially teens. Let’s face it, the possibility of falling into debt and paying interest on top of interest is far too real. It’s easy to ask the question, “Why on earth would I ever let my teen have a credit card?!” Well, the fact is, in 2014 33% of people in America owned at least one credit card. If your teen grows up to belong in that group—and there’s a pretty good chance they will—it’s best to teach them at a young age how to handle their credit. That way, once they’ve matured and are independent and out of the house, you can rest assured they will know how to swim, so to speak, in the deep end of the financial pool that is credit card ownership.
Before I launch into the discussion of teens and credit cards, let me first give you a little background information about what brought me here. I used to work with disadvantaged, troubled families as something of a life-coach. The job title was Community-Based Rehabilitation Specialist. I would go into the home and help parents teach their children skills. For example, a child struggled with controlling his temper when he was triggered by how slow the desktop PC was; he would kick the computer, he would yell profanities, he would throw things. My job—together with the input and cooperation of his guardians—was to help this child find ways to cope with that anger by doing things like deep-breathing, progressive muscle relaxation, etc.
On occasion I would work with a family that needed help teaching their child about finances. The parents already have so much on their plate and are having enough trouble with their own finances; it just makes sense to help them educate their child about how to manage money. In the course of my time doing this unique and challenging work, I discovered five tips any parent can apply in the effort to educate their teen on the tricky subject of managing finances. And, in a world that is increasingly digital, increasingly plastic, it won’t hurt to educate your teen on how to manage finances when and if they’re making transactions with a credit card.
Let Them Know What to Expect
Oftentimes teens don’t know the reality of what it would be like to charge a purchase to a card and then pay it off, with interest. That’s why you should show the teen with dollar signs in his or her eyes what it would look like were they to amass credit card debt. Information we consume is becoming more-and-more visual. The advent of movies and television, and now the internet—where there are typically multiple images on every page—can be thanked for this. Showing your teen an infographic can help her or him focus on the issue at hand. As you can see, the amount of cash you end up coughing up on interest alone—especially if you have a high-interest card—is staggering. We want to teach our kids to avoid racking up this type of debt, and there are resources out there to help us. Most importantly, we need to get on their level, and using visuals to help them know what to expect is a great way to do so.
Make Them Earn It
We know there’s no easy way to get around paying off debt. But once again our teens may not be fully aware of the reality. One way to prepare them is to create a mock credit card ownership situation. It’s a form of role-play, an intervention I often used with my clients. Present them with a pre-paid card. Let them know they can spend up to a certain amount on the card. After they have maxed it out, present them with a statement detailing how much they owe and give them options on household chores to pay it off. Make sure they’re aware that if they don’t pay it off by a certain date, interest will accrue. Sit back and watch as your teen works to negotiate this realistic credit card scenario, where, instead of a big faceless corporation, you are the creditor.
Keep Your Initial Conversation Short
A lot of us can remember what it was like for mom and dad to sit us down and try to talk to us about the realities of the big, bad world. There’s not a lot worse than being nagged. With that in mind, try to keep your discussion about credit card debt short and to-the-point. Studies are finding that the average attention span is now only eight seconds! What’s more, your teen is increasingly inundated with information—they’re texting, watching You Tube, scrolling and commenting on Facebook. A good amount of time to designate for the conversation is about three minutes, and if you can make it shorter than that, do it!
Connect the Discussion Directly to Your Teen’s Everyday Life
I had to learn this the hard way as a Community Based Rehabilitation Specialist. Kids simply will not learn if you present them with a lecture replete with abstractions. If your child likes to play basketball, trying making analogy about the game. For example, “Paying off credit card debt is like playing a pick-up game against Michael Jordan (or Lebron James). True, it’s fun to watch these guys play ball but actually trying to beat them at their own game? Good luck!” And, as a good parent you’ll want to encourage them. With enough practice and hard work they can do it, and you’re willing to give them the benefit of the doubt by doing something like the mock credit card trial described above.
Play the Shopping Game
Finally, a great way to prepare your teen for owning a credit card is to play the shopping game. During my days with clients we used this exercise about once a week. I would take the client to the store and give them a dollar figure as to how much they could spend (usually seven dollars—don’t break your bank!). However, they only had a certain amount of time to find items, and they had to make sure they weren’t going over the spending limit. This is very similar to the type of situation presented by credit cards. We can get whatever we want, but we have to be on top of it with the numbers, both in terms of staying within the dollar limit and paying attention to how much time we have left until the payment deadline hits.
Throughout this process, make sure you’re giving your teen options, to help cultivate independence and decision-making skills. Have fun with this! I hope it helps you educate your teen on how to negotiate the path to credit-management and success!
I hope you found this information useful. What ideas you've seen work for managing credit cards effectively with your friends and family?
If you are looking for a resource that covers fundamental finanancial life skills for the young adults in your family, the Steps to Success Teen Guide is now available in print and downloadable formats. It is approved by the Financial Industry Regulatory Industry and begins by helping your teen identify their personal values and goals, and then goes into the critical financial lessons most of us never learn in school. Receive 10% off the downloadable version until January 10th with the code STG2015. That's just $13.45.
What's your child's financial future worth?