OneBite® - Eating the Financial Elephant

Credit: Do your kids get it?

Jun 28, 2022

By: Missie Beach

Tags: Family

Do your children understand the concept of credit?

It’s common to provide teenagers with their first credit card to make life easier when they’re away from home and to have on hand in case of emergencies, but do they really understand the mechanics?

In basic terms, credit is temporarily borrowing funds with the understanding that the funds will be paid back at a future date. Often, card holders — even adults — forget that they’re “borrowing” someone else’s money.

It’s important to emphasize that part of the equation to reinforce the importance of making timely payments and using only a small fraction of the allowable credit limit, which will help their ability to obtain a home or car loan, or start a business down the road.

Children should also be aware of annual fees, service charges and high interest rates if they don’t pay off the balance each month. Explain to them how missed or late payments affect their credit score and that a low credit score will make purchasing a home or car not only more difficult but more expensive.

Creating scenarios that resonate with children can help make credit lessons seem less complicated.

For example, what if they were out shopping with a group and saw their friends making purchases left and right? Are they thinking about how they will pay that credit card bill before they make that purchase.

Or how will they handle getting credit card applications in the mail once they’re in college?  Or when they start their first job? What can seem like a big salary can rapidly disappear, especially if they’re facing a mountain of credit card debt.

How we can help

Tuning out the noise and staying dedicated to a long-term financial plan can be a challenge, even for the most experienced investor. We can help ensure your investment strategy is as focused as your financial plan.

Our team’s integrated services can also help preserve a lasting financial legacy through proactive tax planning and well-thought-out elections for gifts, estates and trusts.

Learn more on our private client services web page.

Author(s)

Missie Beach, CFP®, CDFA®
Advisors
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1 https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20220615.pdf 
2 https://www.cnbc.com/2022/06/22/powell-tells-congress-the-fed-is-strongly-committed-to-bringing-inflation-down.html 
3 https://www.bls.gov/news.release/pdf/cpi.pdf  
4 https://www.bls.gov/news.release/empsit.nr0.htm 
5 https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_070122.pdf 
6 https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_yield_curve&field_tdr_date_value=2022 

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