Institute of Consumer
Financial Education
Institute of Consumer
Financial Education

Are Your Children Getting Hooked On Credit?

By Paul Richard - ICFE Executive Director

A 'red flag' for parents who are thinking about securing a credit card for their underage children is being waved by the nonprofit Institute of Consumer Financial Education (ICFE), based in San Diego, CA. "This alert is for parents and grandparents because the credit card issuers have a new target and it is your children and grandchildren," says ICFE executive director, Paul Richard.

"Don't get your children (or grandchildren) hooked on credit!", is our first reply. If young people want credit, let them do it on their own AFTER they have a regular, full-time income. Credit cards in the hands of young people not yet working and earning a regular income is unwise. It's almost like a parent getting a part-time job and giving the paycheck to the children.

Co-signing for a credit card for your children Who could otherwise not obtain credit on their own) sends messages to your children, on top of the main message from the credit card which is: "SPEND!" The messages children could be hearing are:
1 "It is OK to buy things on credit you otherwise couldn't afford."
2 "It is OK to spend when you have no regular income."
3 "It is OK to be in debt for spending money you don't have." 4 "It is OK to over-pay for things through credit buying and paying interest."
5 "It is OK to pay interest instead of earning interest on savings."
6 "It is not necessary to save in advance for things you want to buy."
7 "It is OK to go into debt, even for things that do NOT retain their value."
8 "Occasional impulse spending is OK."
9 ""Credit is necessary for a college student to make it through college."
10 "Don't worry, if you over-spend and get into trouble, I'll bail you out. After all, I did co-sign and I do have to protect my good credit record, don't I?"

Parents who make credit-based spending available to their youngsters before they can obtain it on their own, risk setting their children on the road to a lifetime of debt. Or worse, financial disaster.

Few young people have developed financial self-discipline. Credit-based spending can be as addicting as nicotine, cocaine or alcohol. Most proponents of credit minimize the dangers, however, probably because credit-based spending usually doesn't do physical harm that other indulgences do. Co-signing for credit seldom builds credit in your child's name. It does insure that you will cover all payments your children are unable to make. If they have to have a piece of plastic, insist they put up a deposit and get a debit card.

Young people need to be indoctrinated to savings and accumulation before they are introduced to credit-based spending. When opening a saving account (take your children along and have them open up savings accounts also). If saving is important to parents it will also be important to their children. If credit-based spending is the norm for parents, it will be for the children if they are exposed to credit before they become employed full-time or complete their education.

Parents are too quick to bail their children out of financial scrapes and troubles and young people seldom have negative consequences from their extravagance. If a child unwisely spends the entire allowance money this week instead of saving for the concert next week, parents should not give more money for the concert. Let the young people learn the consequences associated with their spending decisions. In this case, no concert.

Tell them this: "When it comes to saving money most people in America will stop at nothing!" and then help them get started in the regular savings habit. Why? Because "Everyday spending decisions, especially credit-based spending decisions, can have afar more negative impact on your financial future than any in investment decisions you will likely ever make." These decisions include how often: to eat out, go to the convenience stores, or how much to spend on clothes, etc.