Big Kid

“It’s not extra money” and Other Things Teens Should Know About Credit Cards

Thank you to Equifax for underwriting this conversation about talking to teens about personal finance.

One night when I was in college, I went to a basketball game with my friends. We noticed a crowd of people gathered around a table outside the stadium. They were giving away free t-shirts for the game, and all we had to do was fill out an application for a credit card.

I didn’t want a new credit card, but an application seemed harmless, and I didn’t know that I would even get approved. Besides, getting free stuff was something that my friends and I were really good at. Along with all the other college students around me, I got my free t-shirt.

It’s compelling to join that group mentality, but I’ve learned that when it comes to credit cards, you don’t want to go along with the crowd.

As an adult, I’ve volunteered to teach personal finance classes to teens in local schools. This is what I want teens to know about how credit cards work before they go off to college:

1. It’s not extra money so you can spend more than you earn. A line of credit is not income, it’s debt. It can be used to help manage cash flow, but it can also be a heavy burden to carry. When you see other students use credit cards to buy things they can’t afford, know that they will have to pay it back later, and it won’t be easy for them.

2. Borrowing money is expensive. An interest rate can look small, but it adds up in a way that makes a restaurant meal, or music, or a new shirt cost much more than expected. If you make small payments instead of paying off the balance in full, you’ll be making those payments for years. Many adults have learned this the hard way.

3. Pay your bill on time, always. Companies keep track of your payment history on a credit report. It can affect your ability to get a certain job or buy a house. Even though I cancelled the card I received when I applied for a free t-shirt, that still went on my credit report.

4. When you don’t pay on time, there are big late fees. Pay attention to the fine print on the back of your statement, and if you don’t understand it, ask someone. You need to know what you’re getting into ahead of time.

What do you wish you had better understood about credit cards and borrowing money when you were younger? What would you tell teens now?

Photo source: iStockPhotos/ Thinkstock

***********************************
Thank you to Equifax for sponsoring this conversation on speaking to your teen about personal finance.

Comments

13 Comments

Oldest

Newest Most Voted

Inline Feedbacks

View all comments

fancybob

11 years ago

The best words of wisdom that my father ever gave me regard finance were: “There is nothing I want in the world so badly that I am willing to pay credit card interest for it.” From a young age, I was taught to basically treat a credit card like a debit card – always make sure you will have enough in your bank account to cover the bill each month. There are lots of better ways to finance large expenses than with a credit card (I just learned that you can set up payment plans for most medical bills without… Read more »

What Teens Need to Know About Credit Cards | Small Notebook

[…] Alpha Mom: What teens should know about credit cards before they go off to college. (1. It’s not extra money.) What would you tell teenagers from your experience? Share your […]

Tonya

I think that it’s also important for kids to get a credit report as soon as they can. I had mine sent to me, and there were charges and cards and accounts that I had never heard of. I urged my brother to look into his a few years later when he turned 18, and he had the same scenario. Come to find out it was someone we knew in our family and we were devastated. Talk to your kids, help them out!

Heidi @Adventures of a Thrifty Mom

I wish there was a waiting period for credit cards and a raised age limit! Seriously, what 18 year old is equipped to handle that kind of financial decision? Credit card companies soliciting college students is predatory.

Jessica

Reply to Heidi @Adventures of a Thrifty Mom

Keep in mind that not all 18 year olds are dependents- some are married with full time jobs, mortgages, kids with unpredictable medical bills, or are responsible for their own tuition (even if all they have to do is pay it until the student loan comes through- that requires having thousands of dollars lying around!). I’d probably go in the other direction to avoid problems. I had a credit card from the time I was a young teenager, with a cosigner and a really low credit limit. I learned to make the payments on time and not carry a balance,… Read more »

Margo, Thrift at Home

This is excellent, clear advice. My dad got me a credit card, under his name, when I was 18. He told me he would cut it up if I didn’t pay it off every month. That got me started well, but I didn’t know about the damage I was doing to my credit by signing up for every credit card that came along! I had so many store credit cards, too, until I got rid of those after talking to a financial advisor when my husband and I were trying to prepare for grad school loans.

Melissa

I would rather teach my daughter frugality and the importance of having savings, emergency and long term. This is something i have been working for my whole adult life and its tough but possible. Having more then one emergency credit card is unnecessary. Credit cards are like mobsters and loan sharks, they always bite you in the long run. Learning to save on the other hand makes you money, by earning interest, rather then costing you money by paying interest with a credit card.

Elizabeth

From a blog post I just wrote — A thought that I have had reoccuring lately in my head, is the concept of robbing our future selves. It came to light in a practical way, when I was considering the cost of people using credit cards. I realized that using them now, was in a way robbing from our future selves…taking money we would have then and using it to buy something now. But the thing is–we have no way of knowing if the future us can afford that, and therein lies the problem so many people face. — When… Read more »

I got my first two credit cards in college (for a T-shirt and a gym bag) and I learned to use them correctly. They had high interest rates which caused me some trouble when I had to put my last semester of tuition on it (my financial aid was discontinued with no warning (if I didn’t pay I didn’t graduate) and it took me about a year to pay it off. I learned a lot from that experience. More importantly though, I established credit. When I met my husband in our mid 20’s he had never had credit because he… Read more »

sandi

keep your credit card in an icetray in the freezer! if you want to purchase something, come home, remove the card and if you still desire the item once the ice melts go back and make the purchase. all kidding aside, my parents let me have a credit card in college but i had to pay the balance in full monthly. to this day (i am 44) i have not paid a penny of interest on a credit card. the advise that i would give is that if you cannot pay cash for the item then don’t pay for it… Read more »

Carolina

I got my first credit card at the age of 41. I got it to use when I travel ( it is not linked to my bank account so if anyone steal it they can’t get hold of my money ) and when I shop online. I have always paid the full balance on it every month and even though I’m eligible for a very high credit due to my salary I have a credit that will suffice for a month of traveling for example. I live in Sweden and I think the system might be different here, I don’t… Read more »

Marcy

One thing to keep in mind is that renting an apartment will be tricky without some kind of credit history (read “need careful use of credit card”) for a young adult. The advice from Equifax is great–one credit card, used to pay for gas, is sufficient. Be sure to have a small monthly credit limit, and yes–pay it off in full every month. Kids need to learn financial self control and this is a good way to help them while they’re still at home. Credit isn’t the big monster necessarily–it’s how it’s used! There are numerous ways young adults can… Read more »

Laura

I think it’s really important for people to realize that credit cards are loans, and not their money. I used to work in a credit card servicing call center and people did not understand that the money they used was the bank’s and not their own. Banks can charge the interest they want and stop your use of the card at will. It’s a privilege, not a right, and it’s not YOUR money. I had a credit card around 16 years old and was taught that if I wanted to avoid interest I should pay it off monthly in full.… Read more »

“It’s not extra money” and Other Things Teens Should Know About Credit Cards

Rachel Meeks

Week-by-Week

Pregnancy Calendar

Affiliate Relationships