In a previous post I proposed that personal finance and debt management be taught in school, figuring that high school students would do well to know about the high costs of credit card debt in a quantitative way before they went off to college.
I don't remember getting a lot of credit card offers in high school. I guess teens don't even have to wait until they graduate before banks start soliciting them!
This MP Dunleavey article on MSN.com, How teens get sucked into credit-card debt, is an eye-opener.
Some teens are set loose with a credit card and have no idea about the mechanics of how it works, meaning they don't understand why it's important to pay it back, what late fees are, what interest is, etc. Then they get their own cards (without the parent co-signing) and get into debt and trouble.
Even if the cards that the high-school students get are debit cards or pre-loaded cards (with a spending limit linked to cash) this doesn't teach them about the effects of carrying a credit card balance and other aspects of the “tricky nature” of credit. The person interviewed is the executive director of Jumpstart.org: The Jump$tart Coalition for Personal Finance Literacy., Laura Levine.
A bit of my own experience with this issue: I had a credit card in the last part of high school. Everything I learned about credit cards — everything I needed to know — I learned from my dad. It was condensed to six words. “Always pay your balance in full.” Or six more words: “Use for convenience, not for credit.” These words were reinforced by his actions; he never carried any credit card debt as far as I know.
There's nothing tricky about this way of looking at credit card debt — don't acquire any! And consider the benefits of paying off your balance in full each month! You get free use of the bank's money until your bill comes due. Then you pay them back, without interest. Meanwhile, if you choose your credit cards wisely, you can earn a rebate on your purchases — they cost less than if you had paid cash! You're a burden to the credit card provider rather than a benefactor.
Now, this advice doesn't cut it with every situation, because most people will need to borrow for a home, and some will borrow for a car. Most teens will not be taking out a mortgage. But that's usually not the first place that young people get into trouble with debt. It's with credit cards.
The last part of the article is very important. The example that we as adults set will be watched closely by our children. If we are responsible with our money, and our children see this, then they are more likely to be responsible with their money. Inversely, if we are not responsible with money, they are more likely to be irresponsible with it.
Schools can certainly teach about the effects of credit, and I think that they should. Parents need to as well.
I feel phenomenally lucky that when I first got a credit card it didn't even occur to me I could use it for debt. I thought of it as a cash proxy for items that are hard to purchase with cash (i.e. airline tickets or anything purchased online). The concept of a running balance was alien to me.
Again, I feel lucky that I felt that way, since at the time I had no real understanding of what credit is or how it works. If I was going to be ignorant, best be ignorant in a financially safe way.
Actually, Colin, I think that's probably more accurate of what I thought of my credit card when I got it. More so, it was ingrained in me not to spend more than I could pay off each month.