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KIDS AND CREDIT
By:
Nicholas T.
Simonic C.P.A. MACC
These two
terms are conflicting. They should be at opposite ends of the
spectrum. You should never allow children to learn about credit as a
positive experience. Credit should be taught to them as a negative
experience and something that should be avoided at all costs. Why?
Because if you teach your children that credit is a good thing either
by allowing them to experience credit, or by example, you are putting
them in a negative position for financial freedom in their future.
Your children
live what they learn. They learn from observing you. I host a weekly
radio program which is a listener call in program. One caller asked
"Wouldn't it be a good idea to get my child started in his
financial life with a credit card?" My answer was absolutely not!
Basic Training
You need to
ask yourself a series of questions.
1. Do your
children understand the basics of investing? You should teach your
children what interest income is. You should also teach them basic
principles about how interest compounds and grows more interest. I
would advise you to start a savings account for your child and help
them put money into it on a regular basis. Explain to the children
the entries for interest and how the interest is added to the
principle, and how the following month interest is calculated on both
the principle and the prior month's interest.
2. Do your
children know what earning money is all about? You need to teach your
young children that if they do work for so many hours, they receive
so many dollars per hour for that work. This will help instill in
them a work ethic.
3. Can your
children balance a checkbook? You should walk your children through
the basics of how money is deposited into an account and what happens
when money is spent from that account.
Why teach your
children bad habits when they have not even learned the financial
necessities? One individual put it in these terms, "Would you
give children keys to the car without driving lessons?"
The Great Con
In 1999
teenagers spent over $150 billion on goods and services. Visa has
decided to capitalize on this statistic by issuing new cards which
are classified as "parent controlled re-loadable payment
cards". These cards are nic-named "Visa Buxx". What
this is is a pre-paid debit card. It is designed for children ages
13-17. Visa is billing it as a safer an more responsible way for
children to spend. It comes with annual fees and periodic fees each
time you "re-load the card with cash". This card will teach
them to spend irresponsibly, and allow them to get goods and services
without any reasoning for the source of the money. It also enables
them to establish a habit that will be very hard to break when they
are adults. In short, it gets them addicted to credit cards. The
question you need to ask yourself is "Do I want my children in
an addictive lifestyle?". The other question is "Do I want
my children in the same financial situation that I am in when they
are my age?" If you are in debt, your answer should be "NO!"
You are now in
the drivers seat with your young children. You have the ability to
establish patterns in their lives that will either help them through
the hard times or make the hard times impossible. You need to
evaluate the financial road that you are taking your children down.
You can
establish your child's financial security now by simply teaching your
child to save 10% of everything that she or he earns or is given from
relatives and friends. Also, instill in your child the fact that
these funds need to be "untouchable". Tell them that the
money that they put into their savings is their fruit tree. That the
fruit tree should never be chopped down and used for fire wood. The
fruit tree is there to bear fruit. The fruit can be picked but the
tree will last a lifetime. You will be glad you taught them. I will
talk with you next time.
For
information about tax tips, contact our Managing Partner at simonic@simonic.net
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