Help Your Child Manage Credit – A Contrarian View

October 9, 2009 by  
Filed under Debt and Credit

Today CNNMoney.com published a story telling parents how they can help their children manage credit. The author is apparently very concerned that all hell is going to break loose in the credit world this February. Why? Because credit card companies won’t be able to issue credit cards to folks under 21 unless: (a) there is an older adult co-signer or (b) there is proof that the young adult card-holder has the means to make payments on the card.

OMG. Please say it isn’t so. Isn’t this denial of easy credit to teens and young adults a violation of their civil rights? Why should older adults have all the borrow-and-spend fun? How are Visa and MasterCard going to initiate the credit-addiction process if they can no longer target students? Where is the AC(redit)LU when we need it?

What makes this tough-credit future for our young ones even more difficult to accept is that their older brothers and sisters were not constrained by such harshness. According to the article, 84% of current college students have at least one card and 50% of them enjoy the pleasures of four or more cards. Our 2008 graduates left school with an average card balance of $4100. They had some serious spending fun. Today’s teens want a piece of that action.

No wonder CNNMoney is so eager to help. It’s just not right that the next crop of college freshmen will have a harder time running up credit card debt. Now is the time for parents to take aggressive action to remove these unreasonable credit barriers for their dear children.

So let’s review the “advice” offered in the article:

1. Start with a Debit Card. The author says do this so that “your kid will get the hang of using plastic.” This sounds harmless enough. But there is that research that proves that people who use plastic spend more in total and spend more on individual products and services compared to people who use cash. So, an accurate interpretation of this recommendation is that parents should help their kids “get the hang” of spending too much.

2. Share Your Card. Apparently it is not enough that parents provide financial support for their children. Now we are supposed to share our ability to spend more than we make. If the child is a bad girl with credit, says the author, you can “remove her from the account.” The problems of someone having to pay for the teen’s excessive charges and perhaps both of you having damaged credit are for you to figure out.

3. Co-sign Your Child’s Card. Sure. Make their bed, cook their breakfast, and write their term papers while you’re at it.

Why does this author think that credit is a “gift” that we should provide to our children? Credit is the gift that keeps on taking.┬áThe gift that Mrs. ToughMoneyLove and I wanted to give our children is to enter full adulthood with a college education, no debt, and a responsibly negative attitude about the use of credit. So far we have succeeded.

By now all the credit score worshippers who are reading this are ready to tell me off. Let me save you the trouble:

“Everyone needs a good credit score.”

“The way to get a good credit score is to use credit responsibly.”

“College students need a good credit score when they graduate.”

Blah blah blah. I’ve heard it all many times. I am not persuaded. The hard truth data on college student credit card debt is more powerful than your tiresome, brainwashed arguments. Most of the personal finance bloggers that I read started their financial journey from a credit mess.

Yes, I understand that you are only going with the flow and doing what you have been told by FICO. I don’t want to do what FICO tells me. I hate FICO.

The FICO score is designed for the singular purpose of encouraging the use of consumer credit. That’s why net worth and income are ignored when calculating a FICO score.

Visa and MasterCard aren’t looking out for my kids. They descend on college campuses like locusts, because we aren’t there to intervene. Why do you think that Congress changed the credit card rules for teens? Go back to the credit usage data cited in the article. That’s why.

Let’s help break the cycle of debt-driven consumption that has plagued us for too long. Let’s start by not being enablers of credit card usage by our teenage children.


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Comments

10 Responses to “Help Your Child Manage Credit – A Contrarian View”
  1. Great post! Forcing some financial discipline on young users is desperately needed.

    My only comment is that the age limit should be 18 not 21. There are some practical reasons for having a credit card once you get to college – especially for those who study overseas.

  2. Rick Beagle says:

    Actually agree 100%.

    Good post TML.

  3. Marc says:

    I think young people should have access to credit. I got my first credit card at 18, put a car repair on it for close to the max (only a thousand credit limit) and saw that I paid an exorbitant amount of interest. I learned through the next couple years, how to better use it. Now someone could have told me the lessons I learned (and they did), but I would not have listened – I would have thought I could handle no big deal – I needed the experience.

    Coddling young adults is not a good way to educate them.

  4. cjbr549 says:

    I think raising the age limit is a good idea. I didn’t have any business with credit when I was 19 (although I got it). The real eye opener was adding up all the interest I was paying and thinking that it was like piling it up and using it to fuel a bonfire. I don’t know about the rest of you, but I will NEVER be rich enough to heat my house by burning greenbacks, so I put an end to it. I would consider cosigning a loan for a car for a kid, as I could repossess that and sell it if they were iresponsible, but never a credit card. A reliable car may be a necessity for them, but a credit card is not a necessity for anyone.

  5. Gail says:

    Excellent post, 100 agree! It’s bad enough that so many young people graduate college today saddled with the burden of 5- and 6-figure student loans…they don’t need CC debt on top of this. And if parents realized the truth behind FICO scores they would be much more reluctant to co-sign and add their kids as authorized users to their own CCs.

    We have to stop the madness…young people desperately need to learn that living with consumer debt is not a normal, acceptable, and inevitable way to go through life. All this nonsense about “good debt” vs “bad debt” is warping our kid’s financial attitudes and values.

  6. MasterPo says:

    I think your flat wrong. You’re teaching children the wrong things. Totally.

    The government can run up debt and not worry about paying it back. So why shouldn’t they? Afterall, our Nobel Prize winning President supports the idea and more. He can’t be wrong – he has a Nobel Prize!

    :-)

    • Tim says:

      Please look at the history of the national debt in this country and you will see that Reagan, Bush 41 Clinton and Bush 43 also loved debt. Silly attacks on the current president do not solve anything.

  7. Snowy Heron says:

    Excellent post. Most of us babyboomers didn’t get our first credit card until after we finished college. Back then, you were expected to be employed so that you could actually repay the loan, plus I don’t think you could sign a valid contract before the age of 21 without getting a guarantee and I don’t know of any parents in my parents’ generation who would have done that.

    I have been trying to teach my kids this same thing. The oldest and youngest got it and have avoided credit cards. My middle child got a card from Citibank when she was a freshman (against my advice and without my knowledge) and totally screwed up. I think it contributed to her flunking out of school and really messing up her life. She is still working through the problems that this created. As far as I am concerned, the government can let Citibank go belly up. They deserve it.

  8. Bryan Batson says:

    Thanks for the post. Personal responsibility and delayed gratification is what I’m reading here in your words. I know whenever I was in college I lacked both. You touch on the first part of credit and the issue that gets most people in trouble with “consumer debt.” What ever little money I can get my hands on I’d spend. Got my first credit card from a t-shirt giveaway and quickly overdrew that piece of plastic. It was essentially from my ignorance on what money really is and what credit should be used for. My debt increased, my net worth decreased, the assets didn’t really go anywhere and my income was unchanged. Not what you should be doing how you should be using credit.

  9. Bryan Batson says:

    Pressed enter to quick…doh

    The second part which I didn’t see addressed in this article is there is a difference between good debt and bad debt. Consumer debt is bad of course and all the stuff that you acquire should preferrably be bought with cash and not credit with a few exceptions. It’s essentially debt that takes money out of your pocket while never puting it back into your pocket. Credit can be incredible for increase your net worth and most importantly your income when used the right way. Good debt levrages yourself to buy income producing assets that puts money back into your pocket. I didn’t learn how to do this in school and had to learn from people doing it already in the real world.

    Bad debt essentially imprisons you and good debt can set you free from corporate America and the rat race. None of this is taught in schools and most parents don’t have a clue about the difference either. There’s so much to talk about on the subject but I just wanted to add to your blog.

    Bryan

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