Monday, July 11, 2016

Let Kids Know Credit Card Purchases Are Loans

Today’s fantastic family finance article is:

Not My Money Card

“Neither a borrower nor a lender be.” ~William Shakespeare

...until your next credit card purchase.

Do your kids realize you’re borrowing money every time you make a credit card purchase?

Probably not.

The next time you use a credit card around the kids, strike up a conversation like the following:

“Do you know who just bought lunch?”

“Um, you did. I just watched you pay with your card.”

“Actually, I didn’t pay for it yet.”

“Uh, Dad, are you OK!?”

“The bank paid for it. This credit card lets me borrow the bank’s money. So every purchase is a loan I have to pay back later.”

“Oh. I get it. When do you have to pay them back?”

“By the end of the month.”

“What if you forget?”

“Then I have to pay them back the amount I borrowed plus interest.”

“You mean like the teeny interest I get in my savings account? That’s not so bad.”

“No, like 330 times as much interest!!!” 1

“Ouch! Good to know.”

That’s a conversation you can’t have too often.

Remind your kids that every credit card purchase is a loan. And if they don’t pay it back in time, they’ll be the borrowers they simply can’t afford to be.

1 Assuming a bank savings account interest rate of 0.06% and an average student credit card rate of 19.8%.

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