Credit card 101: When to teach kids the basics?

“Many of today's youth have credit cards before they leave high school, yet they have never had a course in money or how to invest it, let alone understand how compound interest works on credit cards.”—Robert Kiyosaki

If only Rebecca Bloomwood (main character in Sophie Kinsella’s Confessions of a Shopaholic) read Robert Kiyosaki’s Rich Dad, Poor Dad, she wouldn’t have fallen into a deep web of debt. We often consider ourselves “ready” to have a credit card in our wallets even though most financial advisers say otherwise unless one is responsible enough to pay each time the card is swiped. In Kinsella’s book, Rebecca (Becky) continued to spend using her Visa even though she was already in a serious amount of debt.

A credit card, when used properly is a good friend. One can easily transact business with it. Payment of bills, online purchases (e.g. airline tickets, hotel reservations) and other transactions can be done in a snap. However, if used inappropriately, it can cause a big headache, a permanent headache.

When should parents start teaching their kids about managing money and finances? As early as possible, or when a child is old enough to understand numbers.

Here’s my story. When we were kids, my older brother and I hate the thought of going home. Every afternoon, my mother would expect us to drop what is left from our daily allowance into a piggy bank.  

If we drop a penny or two, TV time is prolonged to an hour. If there is none, we go straight to bed after finishing homework. Most of the time, I come home empty handed because I cannot help buying myself a treat after a long day in school. At that time, I was too young to realize that she was training me to become money-wise with my finances.

As I grew older, Mom and Dad granted my wish: a credit card. Though it was just an extension of their account, still it was a credit card. They said that I should use it for emergency purposes only. However, I treated each mall SALE as an emergency. Within four months, they took the card away.

Mr. Kiyosaki said in his book that kids ought to be taught about credit cards. Parents should be able to explain the power of it, its pros and cons as well as the sacrifices he/she needs to make in paying for the debt incurred.  It would also be helpful if the child is aware that he/she will be paying more than what is the actual price of an item each time the plastic is swiped.

It would also be best to stress out the importance of paying bills on time. “People who don’t pay bills on time lack integrity,” said author and motivational speaker Larry Winget. In his book People Are Idiots and I Can Prove It, Winget said that in order to succeed, one should take care of his finances. He added that “hefty dose of personal responsibility goes a long way toward solving problems.”

It’s sad that schools do not teach managing finances unless if you are taking up accountancy.  No wonder we all fall into the same web Becky fell into. Financial awareness at an early age can help the child understand the importance of saving and the consequences of too much spending with or without a credit card.

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