Have You Had "The Talk" With Your Children Yet?

“Money is hard to earn and easy to lose. Guard yours with care.” - Brian Tracy
Have you had “the talk” with your children yet?

Not the “sex” talk but the talk that is necessary for your children’s future. The financial talk about credit and credit cards. Talking to your kids about their financial goals is key to avoiding financial conflicts in the future.

Credit cards, to have one or not to have one. That is often the question faced by thousands of families as their high school graduates have their first experience living away from home. The answer should be carefully thought out by parents and children, alike.

Undoubtedly, there can be many advantages to having and using credit cards. They’re convenient. They certainly can be useful in an emergency such as car trouble away from home or medical emergencies. And, when payments are made in a timely manner, they also can help a young person establish a favorable credit history.

But many young adults away from home for the first time have not yet mastered the financial skills required to successfully manage credit card debt. High school seniors involved in a test to measure their understanding of money scored an average of just 41.9%. Only 21% of high school and college students between the ages of 16 and 22 have taken a personal finance course.

Yet this group of American consumers is one of the most highly sought after market targeted by credit card issuers marketing campaigns. In addition to the many “pre-approved” credit card offers received by mail, college students also may be greeted on campus with a barrage of incentives offered by companies just for applying for a card, everything from free T- shirts to duffel bags.

For many of these inexperienced youth, the misuse of credit cards can spell disaster, not only financially but also academically and psychologically.

Students 18 to 21 years of age are considered adults and are legally responsible for credit card debts. Because young adults holding traditional cards receive monthly bills at their “away from home” address, they are solely responsible for managing the amount charged and making payments in full and in a timely manner to avoid interest and late fees. Parents may not be able
to monitor the amount of charges or the way in which payments are being made.

Having a parent co-sign makes credit card companies more willing to issue a card to a
young adult. However, bills still are mailed directly to the official card holder at his or her away
from home” address. While parents may not be able to monitor the card’s use, they are still legally held liable for debts if their children are unable to pay.

Similar to traditional cards, the young adult is still considered the primary cardholder and assumes responsibility for debts incurred. However, “student cards” generally have lower credit limits. On the other hand, they also may contain provisions such as above-average interest rates.

When considering this option, be sure to read the terms of the contract carefully to be sure it is truly a “student” card with lower credit limits rather than a “traditional” card which is simply being offered to students. While this option provides total independence, the lower credit limit
reduces risk as long as the young adult only holds one card and repays debts promptly.

Intended for those with little or no credit history, secured cards require a deposit equal to the
credit limit on the card. They also may carry a higher interest rate. This option allows total independence within the limits established by the deposit.

This parent owned credit card authorizes children to make charges to their parents account but since bills are mailed to the primary cardholder, parents will receive the monthly statement
of charges incurred. This option provides the security of knowing credit is available to young adults but allows parents to monitor both the types of charges being made and the total amount of indebtedness being incurred

Teen” cards are not truly “credit” cards. Rather, these are actually “smart” cards. Money deposited into an account by the parent is made available to the young adult but each time the card is used, the amount of the “purchase” is deducted from the funds available. When the funds are exhausted, the account must be replenished or the card can no longer be used.

Although more flexibility is provided for young adults over 18 years of age, some companies allow parents to place restrictions on the types of purchases that can be made and some allow online monitoring of the account by parents.

Visit with your young adult about using credit cards responsibly. Encourage your son or daughter to:

Establish a budget and live within his/her means.
Discuss the difference between wants and needs. Define what an “emergency” really is!

Resist the “free” offers made to those who apply for credit cards.
Experts recommend that students, especially, limit themselves to just one card.

Keep track of charges to credit card accounts.
Researchers have found that using a credit card log can help limit credit card debt.

Pay monthly bills in full and on time.
Over time, interest and late fees can add substantially to the total amount owed.