Are you aware that by the time your children have finished high school, there's a high chance they will have acquired a credit card? It's this reason we really need to start teaching kids about money early.
In America, nearly two-thirds of today's university students have at least one in their name.
According to the AustraliaSCAN reports, 46% of 18-25 year olds had a credit card in Australia in 2006, and this number is expected to have increased. In 2009, there were an estimated 36 million debit cards and 16 million credit cards in circulation in Australia (Euromonitor International, January 2010).
With these statistics in mind, it's a great idea to sit down with your children and ensure they understand how these cards work before they obtain one. Here are some principles to discuss:
- Having a credit card doesn't mean you have free money
- Only use it to purchase items you know you can afford to pay back
- Use it for emergencies only, it shouldn't be a money substitute for purchasing items you can't afford to pay back
- Pay back the balance of the card as soon as possible
- If you're unable to pay your card in full, the outstanding balance will incur interest
- If you can't pay your card in full, pay as much as you possibly can to reduce the interest each month
- Only paying the minimum payment each month means your credit card bill will never reduce as you are paying off interest only
- Ensure you notify your provider of a change of address so that account statements are delivered promptly to the correct address to avoid additional fees and interest payments
- When it comes to that time when your child does get a credit card, advise your children to look for cards with the following key features:
o Low interest rates or finance charges (also known as APR or "annual percentage rate")
o Low or no annual fees
o An 'interest free' or 'grace' period before finance charges are incurred
o Other benefits, such as extended warranties on purchases etc
Discussing these key points with your children will help them avoid the possible pitfalls related to credit cards, and allow them to use their card in a manner that is low stress and safe. Remember, it's never too young to start teaching your kids good money habits.
Looking for more ways to teach your kids about money? Visit http://www.moneytoolkits.com/ and claim your FREE copy of moneySMART$ emagazine written by Nicole Clemow and the team at Money Toolkits. Nicole is an international author and speaker on the subject of teaching kids about money and how to make it.