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!”.