Students are simply not getting adequate financial education before being expected to handle their own finances as adults. In my kids’ high school there is a single semester personal finance class, but it is an elective. If the goal of an education is to give young people the skills they need to be successful functioning adults, how can this not be a required class? Even then, a single semester seems like a dreadfully inadequate amount of time to cover seemingly infinite financial subjects such as budgeting, tracking spending, insurance, and retirement planning. The responsibility to teach these lessons falls on parents, and I take that responsibility seriously. Over the weekend my wife and I decided it was time our 18 year old son take his financial education to the next level. We decided that our son should get a credit card.
Given the fact that my wife and I racked up over $100,000 in credit card debt, and then paid it off, you might think we would tell our son to stay away from credit cards. We might share with him the dangers of using credit, and teach him how to avoid them at all costs. I believe that would actually be a disservice to him. Just because we abused credit cards, doesn’t mean he will. Many people are able to use them as a financial tool to enrich their lives, and even earn some great perks. Our job is to educate him as to how credit cards work, how to use them correctly, and also make sure he understands the consequences of abusing them.
Here’s what we hope to accomplish by having our son get a credit card:
- Credit Score : Whether you like the concept of a credit score or not, avoiding it completely during your lifetime is almost impossible. Eventually our son will apply for a car loan, a mortgage, or some other type of credit. This may be difficult with absolutely no credit history. By having him open and use a small line of credit under our guidance, we can help him lay the foundation of a solid credit history that will help him if or when he decides to apply for credit later.
- Financial Education : Using credit cards are ingrained into our society. While it’s possible to rent a car or a hotel room with a debit card or cash, it’s more convenient to use a credit card. We want to teach him how to use credit cards responsibly, get a feeling for what they’re about, and how they work, and then make a responsible, educated decision regarding how he wants to use credit for himself.
With that in mind, we having apply for a credit card through our bank with the following terms and conditions:
Initially, he will use his credit card to purchase gasoline for his car. As time goes on, we may allow him to use it for other purchases.
Provide Access To Account
He must either give us the ability to look at his account online, or show us his monthly statements. This will allow us to monitor his credit card use.
Limit Credit Limit
Regardless of what he is approved for, we will ask that the credit limit be set at no more than $300. With a low credit limit, even if he maxes it out, it can be paid off relatively quickly.
A person’s credit history and score can have a significant impact on what opportunities they can and cannot take advantage of. Having great credit can be a huge advantage if used correctly. By having our son get a credit card, and teach him how to use it correctly under our guidance, we can give him the valuable skill of how to use credit correctly as well as a great start in building a positive credit history.
What do you think, EOD nation, would you help your child get a credit card and teach him or her how to use it?