Just as with drugs, the pleasures of credit are flaunted while the dangers of debt are downplayed or ignored.
Imagine if a drug dealer set up a table in your local grocery store or at the farmer’s market. Get the picture of the drug dealer giving away free t-shirts or coffee mugs if you try out their product. Would you blithely send your teen over to the table to sign up?
Well, that is what you are doing if you don’t give your child an extensive understanding of how credit works.
Credit Card Debt. So easy to get into. So hard to escape.
The minute my kids hit 18 years of age, the pre-approved credit card applications started to come in the mail. They get at least one a week and sometimes more. The credit cards come with a 0% introductory interest rate for the first six months and then zoom up to 27% (in the small print).
But, whoa. At the age of 18 aren’t most kids still in school? How is it expected that they will pay back this debt? Obviously, it’s assumed (by the banks) that it won’t be easy to pay back. The proud new credit card owners will spend up to their limit with the 0% interest rate and when the introductory period is over, the monthly minimum payments will be mostly interest.
Recently I helped a 19 year old (let’s call him “Sam”) who has managed to get himself into $6,000 of credit card debt in just 6 months. Sam has no steady job and no means of paying back this debt.
When I interviewed Sam, who is otherwise a cautious and conservative person, on what he was thinking while using his new credit cards to buy things, he told me that he “didn’t really think about it.”
Sam said these things about his credit card debt:
- He didn’t understand how credit cards worked.
- He figured he would get a job soon and be able to pay it back.
- He knew he was going to have to pay back the money, but didn’t understand that there were minimum payments.
- He had no idea that there was such a thing as a credit score.
- He didn’t know how a good or bad credit score would affect his future life.
And believe it or not, the understanding of this subject is NOT covered in most (if any) regular school curricula. That means that the education of kids on the subject of credit falls on the shoulders of parents. This is a big subject. Where to start?
I suggest starting by watching the documentary, Maxed Out. Watch the trailer for the documentary above.
It’s powerful (some kids commit suicide because of their credit card debt), and I guarantee it will stimulate conversation with your teen if you watch it with them. You can buy, rent or stream the video from Amazon here. It is also currently available on Netflix. Watch it!