I’ve been wanting a chance to speak about finances with my cousins “Conner” and “Emily”, and I finally got the chance this past weekend. While wandering around State College, PA, I asked both my 13- and 17-year-old cousins if they knew what a credit card was and how it worked.
The responses scared me.
The reason I began with credit cards is because I continually hear my cousins “wanting this and that”, and how their mom usually buys it for them. Here is a conversation I had with Emily:
Me: Yeah, we just got ourselves a Nintendo Wii as an early anniversary gift
Emily: I wanted a Wii, but they were out. So I made my mom buy me a Playstation 2.
Me: But your mom doesn’t have that money. How did she buy it?
Emily: I don’t know, she just put it on her credit card.
Me: Emily, do you know how credit cards work?
Emily: I don’t care as long as it gets me what I want.
Sigh and gasp at the same time! Was I like this 15 years ago? The reason I know whether her mom could afford it is because I’ve done her taxes and know how very little she actually makes. She gets many tax breaks, but she’s still close to the poverty line. So I followed up with a conversation with Conner:
Me: Ok Conner, do you know how credit cards work?
Conner: Yeah, you swipe it and it takes money out of your account. You can only spend what you have in the bank.
Me: Well no, that’s a debit card, which is also called a check, bank or ATM card. With a credit card, you’re granted a certain limit. If you go over that limit, you pay some penalties. Also, if you don’t pay off your balance each month, you pay interest on the amount. With your credit history, or lack of, you’ll probably pay 20-30% more than the stuff that you bought is worth each month.
Conner: Yeah, that’s why I’m not getting a credit card when I turn 18. I’ll just save up my money to buy the stuff I want.
Me: Awesome! That’s great to hear!
I thought we ended on a high note, but then my cousin Conner started telling me about the first car he’s getting:
Conner: I’m gonna buy a 2002 or 2003 Chevy Cavalier and upgrade it with exhaust, carbon fiber hood, ground effects, etc.
Me: But where will you get the money for that? You’ve never had a job.
Conner: (no answer)
Me: Do you know the different ways you can buy a car?
Conner: Um, no
Me: You can either pay cash or buy it with a loan (I’m leaving leasing out if this). If you buy with a loan, then you’ll pay thousands more for the car over the term of the loan than if you had paid cash. If you pay cash, then you have to save up for it for quite a while on a low-paying job.
Conner: Yeah, I’d probably buy used. My dad wanted to sell me his old car for $500 and it runs great
Me: Do you know what else you need to pay with a car? You have car insurance, which would be about $100 or more per month for you. You also have gas, which isn’t getting any cheaper. And don’t forget about fixing the car, since parts and labor can be pretty expensive.
Conner: Yeah, and I’ll also have an aero kit and racing seats!
Me: Sigh. Let’s just get back to the stadium.
Even though each conversation ended on a sour note, it was still worth it. Even if you don’t think you’re getting through, you’ll be surprised in what they hear. It may not kick in right away, but one day you may catch your teen child or cousin telling their friend “Don’t buy those shoes. You’ll have to pay interest on them!”.
“Emily: I don’t care as long as it gets me what I want.”
Ouch! That’s rough coming from a 13 year old. It’s great that you are having these financial discussions with them. Did you tell their mom what happened?
I think I need to have a talk with their mom, but I only see her every so often. I need to muster the courage to just call her up out of nowhere.
The hardest part with talking with family about money is not getting angry or frustrated. You say your piece and leave it at that.
It’s a bit easier with kids as they (even if they act other wise) like to please adults
Well, at least he’s talking about tuning up a cheap car instead of a new Scion or Acura?
And try not to bust on them too much. Like you said, this is the age where they learn a lot about finance, and pairing that with the struggles of growing up ina materialistic society in general, that’s a lot to process!
I’d be worried about the way he plans on driving after he manages to add that brrrapppp! muffler and ground effects and racing seats. Being in debt may not be smart, but it’s a lot better than being in the hospital after crashing the little souped up car because you’ve been an idiot and drove faster to see just how loud and high a note you could get that muffler to make!
Teenagers can be selfish (just like real people)and often don’t want to here things that they don’t like. I think, though, that a surprising amount of stuff sinks in as long as you don’t go on about it too much.
You’ll know better than me about these kids, but I’ve noticed that teenagers are often not as ungrateful as they make themselves out to be.
It’s because they’re getting stuff that they didn’t have to work for. As soon as they get out into the working world and actually have to earn money to pay for what they want, then they’ll manage their desires a bit better.
Kenny, I actually relate pretty closely to my cousin’s issues. We grew up in very similar situations, but his were always “worse”.
I too am scared when he gets on the road, so I warned him that driving on your own versus driving with friends, or anyone else, in the car are very different things. Most teen guys will feel the urge to show off, and usually can’t control this urge.
When I was 16 I was convinced my dad was going to buy me a brand new Firebird (which in hind-sight was lunacy because my parents never had a new car). Just because the kid says he’s going to do all that with a car doesn’t mean he will.
rstlne, I’m worried about him because he’s a year behind in school. That means he’ll be 18 this year and only a junior. He’ll legally be able to get loans and credit cards, even if he has no credit history.
Frankly, I have trouble believing how financially ignorant young people can be today. My younger Brother, who is still in high school, scored a perfectly legal (not stolen) 30GB iPod off of a rich young sucker (RYS) for $20! The first time RYS had trouble with the device, he simply had his parents buy him a new one and sold the old one for a song (this was when this model was still new and therefore rather expensive)! My brother brought it home, hooked it up to his computer, did some very basic maintenance on it, and in about a half hour, had it working perfectly. Still works beautifully today. Good for him, but RYS certainly managed to screw himself over! Of course, my Brother happens to one of the most penny-pinching teens I know.
We always used cash only when I was growing up, no credit cards or bank accounts, and we tended to live pretty much paycheck-to-paycheck. I can remember rolling coins as well as ‘money-hunting’ throughout the house, hoping to find enough spare change to buy whatever we needed at the moment. Each of us kids received a small allowance in exchange for chores, which we were encouraged to spend or save as we pleased. Birthday gifts (we didn’t exchange gifts for Christmas) were always carefully chosen, and often planned for months in advance – making wish lists with savings plans/budgets was a favorite activity for us kids, and often caused us to realize that we didn’t really need that $80 Barbie after all. At twelve, I was a savvy enough shopper that Mom would often send me grocery-shopping with Dad, who sucked at smart shopping. It was a bit of a shock, though, when I got out on my own and realized how many financial choices were available to me. Things learned through hard experience:
PayDay Loans = BAD! VERY BAD! I really can’t stress this enough. Theoretically, PayDay loans could be a viable way to cover an emergency cost. In reality, they are addictive and expensive – few people have the knowledge or discipline to use them safely. Before you know it, you’ll be taking out PayDay Loans to cover your PayDay Loans, and the cycle will never end. They may sound like a good idea, but that money has to come from somewhere, it isn’t really free, you know…
Debit Cards = Good, if used correctly. But be careful, those small purchases can really add up.
Contract Cell Phone Plans = BAD! Go over your minutes? Hand over your first-born, it’ll be cheaper.
Pre-Paid Cellphone Plans = GOOD! You’ll know right away when your minutes are up, no accidental $300 phone bills. By the way, if you’re a teen looking to buy your first cellphone which you’ll pay or help pay for, this is the way to go. Otherwise, don’t be surprised if your bill ends up being over $100 a month.
Now that I’m in college, I’m planning ahead, taking advantage of the loan rates and chunks of cash (which I will probably never see all at once again) to buy things that I Know I’ll need when I graduate, like a professional wardrobe, 1st & Last Month’s rent, the Dentist, Quality but not extravagant electronics, etc. Having lived in the real world for nearly 4 years before I was able to qualify for a school loan on my own, I have some idea of what to expect when I graduate. I feel sorry for all those kids who went straight from HighSchool to College, though. They have no idea what the real world is like… Kind of amusing to listen to them talk, sometimes, though. Pipe Dreams in the Sky, lol.
17 and not knowing how a credit card works? to me thats really shocking its not like he has just hatched from an egg. and 17 and never having a job of any kind?
i had a paycheck when I was 12 from a paper round. that taught me the value of a dollar (6 days a week for 2 hrs a day to earn i think it was 7$ a week… circa 1988)..
maybe its an american thing (im australian). my wife has zero concept of budgeting or managing money. her sister is no better (Expesnive baby clothes for 0-3 months that get worn once before its outgrown!! outragous!)
I like your debt scale box!
Stu, I was actually inspired by another PF blogger (sorry, can’t remember which) to ask my cousin if he knew about credit cards. Apparently, you can’t take for granted that TV and parents will teach our kids about money. Perhaps that’s why the US is in so much debt? So few people know the right (and wrong) ways to spend, and those tend to be my readers 🙂
Money should be a course in school. When I was in highschool ‘back home’, home economics was standard for everyone and it made sure you could boil potatoes, basic cooking 101. The kind of things that teach you to eat the heels of loaves of bread because not doing so is a waste for waste’s sake.
my wife teaches english in rural virginia and 7th graders who cant name all the months of the year let alone put them in order (the number of kids that put monday as the first day of the week was mindnumbing.)
I need to learn not to be so shocked.
The more I think on it, money really needs to be taught in school when they start highschool.
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Sounds like your cousins need to earn something they want by saving their allowances just for a reality check. And as far as the car fantasy goes, it’s ok for him to dream a bit. It’s one thing to talk with your cousin, and another thing when the rubber meets the road. I’m not sure he knew he was supposed to take you seriously or if that was just chit-chat.
[…] Talking Money With My Teenage Cousins @ Clever Dude. The reason I began with credit cards is because I continually hear my cousins “wanting this and thatâ€, and how their mom usually buys it for them. […]
@stu Just a quick irrelevant comment – in some (if not most) countries, Monday *is* the first day of the week… It’s one of those culture things (like day/month/year vs month/day/year)