gmhTODAY 08 gmhToday May June 2016 | Page 40

FINANCIALLY
Speaking
What To Tell
Your Children
About Credit
Cards…
Content prepared by ©
2015 The Penn Mutual
Life Insurance Company,
Philadelphia, PA 19172
W
hen children go away to college
these days, they often carry two
“essentials” that weren’t available to prior
generations: personal computers and credit
cards. According to Nellie Mae, the national
student loan financing corporation, 83
percent of undergraduate students have at
least one credit card, and the average amount
owed is $2,327.
What’s wrong with this picture? It suggests
that young people are ringing up too much
debt too fast. It also suggests they don’t fully
understand some basic concepts about money
— not the least of which is that anything
bought over time at interest, ends up costing
far more than it should. Impulse buying and
overspending before they are even out in the
working world, leave many of today’s graduates
with debt they can’t afford and a less than
attractive credit ranking.
So What’s The Solution?
For children (as well as adults) the solution is
not spending beyond your means and learning
how to manage credit.
Online Shopping at an Early Age
Let’s start with a few basic facts of modern life:
• Children ages 6-17 are collectively spending
an estimated five billion hours per year on
the Internet, and shopping is among their
favorite online activities.
Jeffrey M. Orth is a
Chartered Financial
Consultant, a Certified
Advisor in Senior Living,
and an Investment Advisor
Representative, with over
15 years of experience as
a business and personal
planning, insurance,
and wealth management
specialist. Jeff is available
for group lectures and
private consultations. Visit
ifitfinancial.com or call
408.842.2716.
1380257RM-Dec17
40
up front (before the charges are actually
incurred), but another idea is to wait and
show the child his or her items on the credit
card statement. This allows children to see the
actual cost of what they purchased — and the
interest that will be added to the purchase if
they don’t pay the amount in full.
• If children can’t repay card purchases on time
and interest accrues, add it to their bill. This
helps them understand the cost of paying
over time
• If they are unable to pay for their purchase in
full, cut off their ‘credit’ for future purchases
until their entire balance is paid. This will
help them understand that they can’t always
buy what they want when they want it (a
lesson even adults should learn!).
• Some banks offer credit cards to minors
with very low credit limits (guaranteed by a
parent of accompanying bank account). Some
parents believe that teenagers take personal
credit more seriously when cards are issued
in their own names.
• Debit cards and pre-paid phone or mer-
chant cards can also help to educate children
about credit. The pre-set limit on these cards
prevents overspending.
• Emphasize that credit is always personal and
cards should not be shared or loaned.
• The vast majority of Internet purchases are
made using credit or debit cards. • It’s important for children to learn that access
to credit is an earned privilege, not a right.
Parents can reinforce this by cutting off
credit when children use it unwisely.
• From an early age, today’s children are making
purchases (especially online) using their
parents’ credit cards, often without realizing
that the debt must eventually be paid off. • Model good behavior. Avoid impulsive card
spending in front of children, and don’t carry
more cards than you need or a higher balance
than you can afford to pay off.
For parents, the challenge is helping their
children understand the value of money and
credit, regardless of its form. Here are some
suggestions: In the modern world, it’s realistic to think
that when your child goes away to college, he
or she may have at least one credit or debit card.
The goal of educating children about credit is
to send them off confident that they won’t owe
“an arm and a leg” soon after.
• Require children to repay any card purchases
in cash. Some parents ask for the money
This information is for general educational purposes only and should not be considered specific financial,
tax or legal advice. Always consult with a qualified advisor regarding your individual circumstances.
©2015 The Penn Mutual Life Insurance Company, Philadelphia, PA 19172
GILROY • MORGAN HILL • SAN MARTIN
MAY/JUNE 2016
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