A Is For Apple, B Is For Bat, C Is For Credit ScoreCredit Card | November 29, 2009 at 1:48 am
The education imparted to your kids in high schools and universities make them eligible to earn a decent income required for a living. They teach social science, world geography, physics, accounting, mathematics, and what not. However, is it enough to live a reverent life in America? What about the managing personal finance? What about maintaining credit scores? No, they don’t teach such practical subjects in their campus. A teen is left out in this cruel world of credit lenders who are lingering around to pound on such literate but uneducated victims. We then blame our kids, other teens, and the whole generation that is sinking in the enormous pool of debts.
So what are you supposed to do? Keep paying their bills till you are completely bankrupt? No. The answer to this question is quite uncomplicated but usually evaded.
Coach your teen
Educate your child about credit scores, consequences of poor scores, effects of huge debts, and every bit of financial knowledge that you can pass on to your next generation. You son’s best friend wouldn’t educate him on these subjects because he himself is unknown about such terms and probably he wants your son to spend money. To educate him is your responsibility.
The financial crisis around the world has seemed to worsen the scenario. The economic challenges that are encountered by the youths today are even critical than what their parents faced during their teenage. Credit now is quickly easily accessible by any teen and they can purchase whatever they need within seconds. What they don’t know is that credit is an influential device. With it comes huge liability which they are not able to repay later.
The Power of Scores
Teach them about the importance of credit score. Let them know that the score that they will maintain hereon would be acting as their financial chromosome. Just as they cannot escape from their genetic features, they cannot defy their own credit score. They would definitely not learn this so easily. What do you do when they do not study for their semesters? Force them? Do it for the information on credit as well. Make them aware how they can reach an ideal score of 850. You are always worried about their semester grades. Who will worry about their credit grades?
You kid can score best possible marks in his semesters but if he has a poor credit history, ask him to forget about a job in a reputable organization. Many companies today perform a background check before they hire any employee at any level. Their criterion is simple – reject the ones with bad credit score.
Habit of timely payment acquired in early age can bear delicious fruits later in his life. Credit score is more severe than ever and it will be even strict in the future. It will be essential for your daughter or son to buy a new house or car, get a job, and a partner.
Young Debts Strictly Prohibited
You kid thinks it’s pretty cool to have 9 credit cards and even cooler when he uses all of them. That’s exactly what the credit card providers want. For them it’s cool to have 20 cards and use the full balance because they earn. Who has to suffer later? Your kid.
You know all the consequences that I just explained you. And probably your kid knows more than that. Then why am I repeating it? Because you just know that you have to know. Because your kid has always seen you spending through credit since childhood. Teach him to escape the trauma by using cash. You want a bicycle, buy it with cash. If you are out of cash, no more shopping. Make this clear and an order.
How will they get so much cash to shop for everything they want? Teach them to save. First save money, and then spend money. If he wants a car, ask him to save money for the down payment.
Do whatever it takes but avoid your kid from being laden under serious debts that would burden him for the rest of his life. A huge debt accumulated during college days would mean paying minimum payments, interest and late fees another 20 years. Instead for striving for a better and luxurious life, he would fight for his survival and paying bills on time. Is that what you want your child to be?
When They Earn
Set a rule for your kid: Use credit card when you start earning. Allow her to go for credit when you see her earning a decent and continuous salary. Not a day before that.
Your role doesn’t end here. Encourage her to select the best credit card among the available ones. It’s easy when her parents choose for her, not anymore. Let her compare the APR of various cards. Let her find a card that charges zero annual fees and offer the most grace period. She will definitely do it with enthusiasm as it is now for her own benefit. And the lessons she learns will stay with her for a longer period, if not for the lifetime.
It’s also important to teach her when to accept offers and when to say ‘no’. Discourage her from accepting every deal that she is offered. Sounds simple, but the exciting offers that credit card companies come up with is difficult for your kid to resist. Some offer free denim, some give away t-shirts. They know your daughter is just out of college and would love a free piece of cloth. Also, too many requests for credit cards can ruin your credit score for a year or two.
Debts can also be mounted by other sources of credit like student loan or many such educational credits. If your kid requires money for education and related things, ask him or her to go for a loan provided by federal agencies. These loans are given on a lower rate of interest and can be easily adjusted when your teen is not able to repay it. However, try to avoid any loans as far as possible.
Spend with Care
Credit is not always bad; it can be good if used properly. Also, a major factor in maintaining a good credit score is punctuality. However, you cannot always keep on reminding your son or daughter about their payment date. It’s wiser to ask them to sign up for a payment reminder.
Most teens mistakenly think of credit as cash. The available balance is a source of income to them. Do not, I repeat, do not let them misunderstand the meaning of a credit. It is only a tool introduced for convenience, not a free credit.
Equally important is the amount of available balance. Credit score also, to much extent, depends on how much portion of available balance is unused. The greater the unused balance, the better your score will be.
It is easy to ruin your credit score within a month, but it takes years to develop a decent credit record. To make kid understand, explain him by comparing it with the process of losing weight. People can do stuffs to appear slim, but practically loosing weight takes quite a long time. There are simply no shortcuts.
General survey shows that most of the amount spent by a young college student is either on a vehicle or unnecessary things. According to them, these ‘unnecessary things’ are most important in their life. Don’t ask me to define ‘unnecessary things’ or they will hate me for this. Moreover, it’s the survey, not my personal findings.
Time for a last piece of advice. While you are teaching your kid to maintain his financial score, don’t just convey theoretical speeches. They will learn when they get some practical experience. Let them decide, let them handle some financial responsibilities, and let them really learn.