Scare Teens Away From Credit???

Mortgage and Lending with Stafford Financial

October 27, 2006

Scare Teens Away From Credit?

This is great article I recently found about Teens & Credit. Credit & Teens is like a ticking time bomb! Enjoy. Carlos MONEY SMART KIDS Scare Teens Away From Credit? Putting a little fear of credit into teenagers is probably a good thing. But remember to point out the positive, too. You want them to be able to make wise decisions when the credit offers come rolling in. By Janet Bodnar October 25, 2006

I teach a class in personal finance to ninth graders, and I have an unusual problem. In trying to warn my students about the pitfalls of credit, I'm afraid I've gone too far. The kids tell me they're so afraid of getting into trouble that they aren't going to use credit at all. It wasn't my intention to scare them. I want them to know that credit can be a useful tool when it's used wisely. But they don't seem to be getting that message.

Relax. Putting a little fear of credit into your students at this age is probably a good thing. Better to err on the side of caution than to encourage them to get into debt when they're not mature enough to handle it.

Besides, your students are still young and haven't been exposed to the credit marketing blitz they'll face when they turn 18. Instilling some skepticism now will make them better able to withstand the pressure and make wise decisions when the time comes.

And keep on delivering the message that credit is a useful tool. Tell your students that borrowing money to buy an asset that appreciates in value -- a house, for example -- makes sense. So does borrowing money judiciously for their education, which will result in higher earnings over their lifetime.

It can even make sense to pull out your credit card if you use it as a convenience, pay the bill in full each month, and rack up rewards points.

Last week I had the pleasure of addressing a statewide meeting of teachers sponsored by the Utah chapter of the JumpStart Coalition for Personal Financial Literacy. I also had the pleasure of watching Dr. Ruby Ward of the state extension service demonstrate educational software that helps kids see the additional cost of buying something on credit.

To make her point, Ward translated the cost of buying a $500 iPod (with case) into hours worked. Assuming a student cleared $5 an hour working at a part-time job, it would take 100 hours on the job to make the purchase.

If the student bought the iPod with a credit card charging an annual interest rate of 18% and paid the bill over 12 months, he or she would pay an extra $52 and have to work an additional 10.5 hours. That puts the cost of credit into language that's non-threatening yet effective.

Use our calculator to illustrate what it takes to pay off a credit balance.


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Karl Christen
Independent Leadership & Financial Fitness Consultant - Pleasant Grove, UT

I agree with you that kids need to be taught the principals of interest, but they also need to recieve a better education on a number of issues regarding finances.  Like how to balance a checkbook, how inflation and savings works, and numerous other issues.  I agree that the credit card companies are scandelous with their praying upon our kids in colleges throughout the country, but I do think that a basic credit course should be mandatory.

The other side of this problem is that a number of kids get crappy loans when their adults because they don't have a credit score or trade lines to utilize to their advantage.  I've had to originate first time loans for many clients at much higher rates then they needed if they would have simply practiced restraint and had been trained on how to utilize and use credit for proper financing decisions.

Dec 12, 2006 03:05 AM #1
Leslie Bloss, Bellevue Real Estate Professional
Bellevue, WA
Great post.  Just think what better shape we would be in if every one understood finances and could live on a budget--including the USA.
Dec 12, 2006 04:05 AM #2
Chris Elizabeth Griffith
Downing Frye Realty, Inc. - Estero, FL
I helped my daughter (age19) get a credit card a few months ago to start building her credit.  Her twin brother doesn't qualify for some reason.  He actually has a job.  She does not.  I don't get it.  Her credit limit is a whopping 300 that was bumped to 500 just for timely payments.  Everyone has to start somewhere I just don't get why this kid can't get a $300 card for emergencies.
Apr 12, 2007 10:33 AM #3
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