The Credit Conundrum
Updated: Aug 4, 2019
I've been thinking a lot lately about the issue of credit. The reality is that credit is widely used in today's society - and while I'm a strong believer in saving for something in advance, I personally often pay up front with plastic to accumulate reward points. So, I've been thinking about how to present credit to kids.
On one hand, my goal with the 4PA is to build good money management habits. On the other, I want to ensure they are ready for adulthood - and if their first exposure to credit is after they have flown the nest, there is a good chance it could be very enticing to get the immediate gratification, without understanding the consequences.
So, as our oldest has entered teenager-hood, we've opened the door a crack by agreeing to forward him some allowance money, but under the following conditions:
- only smaller amounts on credit: we don't want them digging a hole they have to pay back over months and months;
- subject to 10% interest: hey, they've got to learn about interest somewhere, and learn to balance whether the surcharge is really worth the instant gratification;
- we get it all in writing, including the minimum repayment schedule: first, they learn to read the terms carefully, and second, this avoids future frustrations of them trying to pay back as little as possible each month...our repayment terms are fairly agressive, so that they get out of date quickly;
- and finally, no regular use of credit: this is intended to be a once in a while fix in special circumstances. Credit is never intended to replace good money habits.