Is It Time For the Credit Card Talk?

A mother recently told me this story about Jeff, her 25 year old son, and his first experience with a credit card.


Jeff knew that he was not great at managing money and paying bills, so he found a card with a $500 credit line. He thought this was just perfect given that he was working in a restaurant and had a “variable” income. As it turned out, Jeff used up his whole credit line within a few days. For the next two and a half years, Jeff made minimum monthly payments. He didn't understand when “all of a sudden” he owed over $800 on this card that had a $500 limit. Does this sound familiar?  (Maybe the numbers in your story are much bigger!)


Thanks to the economic disasters of the last year, the Credit Card Act of 2009 will go into effect in several months. This will impact parents and young adults as they navigate the credit card maze. While the law has special requirements for those under 21, my own belief is that as parents we have an opportunity here to talk with our young adults of any age about the bigger picture of credit, debt, and financial management. Here are some pointers to consider in your conversations with your son or daughter:

• What are credit cards and what are the wisest ways to use them?
• What is interest? How does it accumulate?
• Why are credit scores important, and where do they come from?
• What purchases shouldn't go on a credit card?
• What are appropriate spending limits on credit cards?

If you are sharing a credit card with your child, consider these facts: One is that twenty-somethings, and college students in particular, are found to put fewer purchases on a credit card if they are on their parents' card. Also, his/her credit rating will be influenced by the credit rating of the parent(s) – for better or for worse! If you are sharing a card, the following might be helpful:

• Discuss your expectations for how the credit card is to be used.
• Talk ahead of time about how much your child can charge on the card without a parent's permission.
• If the credit card is to be used for emergencies, determine beforehand what "emergency" means.
• Most of the major credit card issuers now offer services that can help parents monitor spending. You can sign up to get e-mail or text message alerts whenever the credit card is used or if purchases exceed a certain amount.
• Talk to your son/daughter about ID theft and the importance of keeping the card and the card number safe. Discuss the importance of notifying the credit card issuer immediately if the card is lost or stolen.

If you are interested in doing further reading on this, go to http://www.creditcards.com/. To share your money related stories on this blog, feel free to add a comment.