This week, President Biden made it official: the United States would forgive up to $20,000 in student loans per borrower. The applications opened, the borrowers rejoiced, and the concept of debt got…murkier.
Regardless of how you feel about the government’s decision to forgive college debt, the public acknowledgment of debt was a fresh reminder of the hidden burden of debt resting on the shoulders of so many young people — both educational and otherwise.
For many, the burden begins with a tempting offer.
Almost every credit card approval letter begins the same way: “Congratulations!” From the misleading greeting, you’d think the $5,000, $10,000, or $20,000 credit limit just approved was nothing but a gift. Instead, the greeting should read: “Warning!” After all, a new line of credit is little more than a new chance at deeper debt.
Yes, credit is a tool. It has its place. But just like a saw, hammer, or drill, credit is a tool that can also do damage if misused.
According to a recent report from the credit authorities at Experian, Americans have an average of $22,751 in available credit. That’s $22,000 is potential debt. $22,000 in potential bills. And $22,000 of potential misunderstanding by the kids who witness our transactions.
Beware of Your Child’s Concept of Credit
Assumptions are a tricky thing. After all, much of what a child assumes rarely comes up in conversation. They just believe what they believe, until something contradicts it. But a child’s assumptions about credit cards can be downright dangerous, financially speaking.
For a child, money is usually tangible. Their money fills their pockets, lines their piggy bank, or falls out of birthday cards. So when mom or dad leave a store with a cart full of food by merely swiping a piece of plastic, a child can assume that such things didn’t cost a dime. But a few smart habits can turn your shopping trips into learning moments for your child.
Show and Tell
Studies show that 48% of all purchases are transacted with plastic. About half of those are debit cards, and the other half are credit. When you’re among the 48%, use the point of sale as a teaching moment. Explain that the card you’re swiping tells your bank to send the store some of your money. Perhaps something like this: “Today, we’re using some of the money mommy and daddy worked for, just like how you work for your allowance. We’re trading the store some of our money for this food.” Their follow up questions about how your bank communicates with the credit card processor? You have our permission to make that up.
Spill the Bills
If your child is old enough to understand the concept, sit them down at the end of your billing cycle and show them your transaction history. “See, we’re now paying for the food we ate last week. But we saved our money to pay this bill, so it’s okay! We worked hard to make money so our family could buy what we needed. We knew how much money we had in the bank, and were careful not to spend more than we had.” Your objective here? Drive home the point that those cash-free purchases didn’t go unnoticed by your pocketbook.
Practice Makes Perfect
Finally, to turn your credit card concepts into financial understanding, hands-on exercises will help. There are a number of modern apps and programs that allow parents to pay their child’s allowance digitally, offering practice in cash-free living. Here are a few of our favorites:
RoosterMoney is a beautifully designed digital allowance manager for families. Their tagline: “Transform the way you manage pocket money.”
FamZoo is a virtual online bank for families and kids that facilitates cash-free allowance, loans, expense sharing, and even matching contributions.
ThreeJars is a simple online allowance system that even keeps track of IOU’s between a parent and child. Coming soon: online shopping.