The Chad and I are very transparent parents; we want to ensure our children are well educated about adult topics and life experiences, even at a young age. As children, many of us, including The Chad and I, were not taught about credit, handling money, or finances. I learned by proxy with my father as the banker, my mother broke her arm when I was a teen so I was left to write her checks, balance her checkbook, manage the household finances and do the grocery shopping. Not all children have that experience. With our children we wanted to explain to them the importance of proper budgeting, living within your means, and the ever heavy burden of credit debt.
Living off of Credit
When the recession hit in 2008 our family was deeply affected. The Chad worked in the millwork industry, which is a subset of the housing industry. His line of work supplied goods such as doors, windows, trim and the like to builders, contractors and other business owners who sold to the general public. The housing market affected so many, myself included, in various industry that are tied to its performance. Having just given birth to our twins in February of that year, we were completely unprepared for a change in income later that fall as the market dove even further into the pits. We were one of those families who just was not prepared despite all efforts to cut expenses in our home and we ran up a significant amount of credit debt, much of which was remodeling lines of credit when we updated our home when rates were favorable.
During that time we maxed out our credit cards to survive and were living paycheck to paycheck never getting ahead despite all our best efforts to pay more on our credit cards. We were that underemployed couple with mounting student loan debt, working full time, but not paid enough for our level of education and experience. However, we were eternally grateful for the employment we did have despite the circumstances. So we soldiered on the best we could until The Chad was finally laid off with no work in sight in 2010. and after much struggle and realizing we were struggling to put food on the table just to afford the credit card debt payment, we explored the option of bankruptcy. Ashamed and angry we forced ourselves to meet with a bankruptcy attorney and we were so grateful we did.
The Burden of Credit
While some people are great at managing credit cards and pay off the balance every month, others are struggling. According to the Federal Reserve, American credit card debt hit a record high in 2017, rising to more than $1 trillion. Americans have gotten very comfortable with swiping at checkout or entering digits and clicking buy now online without worrying about the bill that will come later. According to a survey by CompareCards, 12 percent of credit and debit card users had at least one card declined in the last year. 32% were denied due to insufficient funds and 40% because the credit limit had been reached. And, a Bankrate survey found one in five Americans say they have more credit-card debt than they do in emergency savings. Another 12% said they had no credit card debt, but they also had no savings.
Properly Managing Credit
We were much like these statistics and hated that fact. We also hated the fact that we had to resort to bankruptcy. However, we are so thankful we did meet with the attorney and explored this federally protected option. The outcome was enlightening to The Chad and I and we were able to evaluate our spending and habits on a much deeper level. Some of the great takeaways we had from our experience we were able to share with our children so they could avoid our mistakes. Some of those takeaways, as outlined by parent, financial expert, and CEO of Busykid Gregg Murset, were as such:
Use Rechargeable Debit Cards
Think of rechargeable debit cards as the preseason training for a credit card. Kids should spend some time learning to use and manage the money of a rechargeable card before ever graduating to a credit card. Would you ever allow your child to drive a car without getting training? Of course not!
Teachable Moments
Parenting is all about using teachable moments to leave lasting imprints for your child to use while becoming an adult. Preparing your child to use a credit card can provide many teachable moments, including the proper way to get a card in the first place. Eventually kids will be bombarded with offers so take the time now to help show them what card offers mean (or sometimes, don’t mean). Watch out for that APR!
Managing Invisible Money
Credit/Debit cards are perfect examples of invisible money that makes up about 90% of the world currency. It’s critical for kids (especially teens) to understand how invisible money works and how to manage it. Online payments, banking, shopping and entertainment are just some of the ways money moves without actual coins or paper. Since your kids won’t be carrying around a piggy bank, help them deal with money they can’t see.
Paying Their Part
If your child is going to have access to a credit card, then he/she should also be responsible for paying for whatever they buy. Handing over a card with no expectation of them paying for the items is like giving your children a blank check. Their spending needs to be based on budget.
Kids Should Earn It
Though some parents just prefer to give their kids a credit card to use however the need fits, kids should be earning the money they are spending in order to pay for what is bought. Just like in real life as an adult, it can be dangerous to keep using credit when you don’t have money coming in to cover the bills. Have your kids do projects around the house or weekly chores to earn an allowance. No income, no card.
While we may be looked down upon as choosing bankruptcy to absolve our debt, at the time we struggled with what seemed to be a shameful decision. Today, we are better off and are able to run our family like a cash business. Having only just recently opened a credit card, we only have one and the balance is paid off each month. We ensure that we show our kids so they understand that if we cannot afford to purchase this month, then we budget and save for the long term. Additionally, we have significantly more money in our savings, retirement accounts and investment accounts than we ever have so that we are financially more stable and not so reliant on credit. Money should never be an emotional or heated topic or one that is avoided with our kids; we need to ensure