The Advantage Advisor

Volume 4 / Issue 3/ 2009
This Issue:
Life without a credit card
Talking to teens about money
Questions for “Dear Debt Monkey?”

Teaching children about money

Financial literacy among teenagers is on the decline. The Jumpstart Coalition conducts a financial literacy survey of high school seniors every two years. Teens scored an average of 48% on the 2008 version of the survey compared to the 52% they scored in 2006.

While the financial literacy of teenagers is decreasing, their poor money management is increasing. A recent survey found that 45 percent of teenagers know how to use credit cards, but only 26 percent know about the interest and fees related to credit cards. Most young adults leave college with not only debt from their student loans, but an average credit card balance of $2,800.

Parents can increase the financial literacy of their teenagers by teaching their son or daughter about money management. If your teenager receives an allowance, develop a list of monthly expenses that you expect your son or daughter to be responsible for. Teach your teen how to budget his or her money and if he or she comes up short because he or she blew all of his or her money shopping at the beginning of the month, don’t bail him or her out. Teach teens to live within their means. If you do loan your teenager money, establish a repayment schedule.

Talk to your teenager about the difference between wants and needs. Teach teenagers that the latest designer jeans or going to the movies with friends are wants and needs should be taken care of before spending money on wants.

If your teenager has a part time job, help him or her open a savings account and require him or her to set aside a certain amount of his or her paycheck for savings. Make saving automatic. Encourage your teen to set a savings goal, like buying a car or saving for college expenses. Figure out how much he or she wants to save and how long it will take to save it.

Consider opening a checking account for a teenager once he or she does have a part-time job. While you should still encourage the teen to put part of his or her pay check in his or her savings account, a checking account will teach the teen about using a debit card and balancing the account.

Teach your teenager about credit cards. A study found that 21 percent of 18 and 19 year olds already have credit cards. Students are bombarded with credit card solicitations on college campuses. If your teenager is going to have a credit card, teach him or her how to recognize a good credit card deal:

• A low interest rate
• No annual fee
• Reasonable late and over limit fees

It’s also important to involve your teenagers in family financial discussions. If you’re looking for ways to cut expenses, include your teenager in the discussion. Or if you are setting a savings goal or paying down debt, involve your teenager and tell him or her about your plan.

Allow your teenager to make mistakes and don’t always open your bank account to bail him or her out. The consequences from his or her mistakes now are probably minimal, but the life lesson will reap dividends.

Dear Debt Monkey

Q: I keep hearing that I should get copies of my credit reports and know my credit score. Is this really important, and how do I get this information?

A: It is very important to check your credit reports at least once a year. You can get a free copy of your credit report from each of the three credit reporting bureaus by going to www.annualcreditreport.com or by calling (877) 322-8228.

Your credit report will show all of your current and past credit accounts. It will show if you were/are current on your payments. It will also show how much available credit you have and how much you owe.

You should check your credit reports to make sure everything is accurate.

Your credit score is not included on your credit report. You must pay to view your score.

Your credit score will be a number between 300 and 850 that lenders use as a measure of your credit worthiness. The higher your credit score the better.

You probably don’t need to pay for your credit score unless you are planning to take out a big loan, like a mortgage or a car loan.

Keep in mind that your credit score is likely to vary among each of the credit bureaus.

You are more likely to get a loan and get a good interest rate if you have a good credit report and a high credit score.

Questions?

Do you have a question for the “Dear Debt Monkey?”
If so, please send your question by e-mail to Kristen Garrett at kgarrett@advantageccs.org or by postal mail to Advantage CCS, 2403 Sidney St., Suite 400, Pittsburgh, PA 15203.

Did you know …

Any time you pay with plastic a record of your transaction is put into a database that is maintained by your credit card issuer.

Every type of business you frequent is given a code by the card networks that process the transactions. This code is what is recorded. This information is used for several things including marketing efforts, fraud detection, law enforcement and risk management.

Creditors must disclose that they record this information and how they plan to use the information in the card holder’s privacy statement.

Information: www.creditcards.com

Questions about a credit card-free life

One of the keys to paying off debt - and a requirement for people participating in a debt management plan - is to stop using credit cards. This can be an intimidating prospect full of questions. Here are some of the most common questions Advantage CCS counselors receive about living without a credit card:

Q: How do I rent a car without a credit card?
A: Renting a car without a credit card is actually quite easy. A debit card can be used in place of a credit card. The rental company will usually put a “hold” on your account to insure that the car is returned in good order. The “hold” can vary in amount, but it can be between $200 to $300. A “hold” means that money is frozen, and if you have inadequate funds in your account, you could bounce a check. The entire hold amount is usually returned when the car is returned. You may also have the option of putting down a cash deposit in place of the “hold.”

Q: How do I book a hotel room without a credit card?
A: Booking a hotel room without a credit card often works the same way as renting a car. A debit card can be used, or you may be able to make a cash deposit. Make sure to ask the hotel for any special payment or reservation policies if you are not using a credit card.

Q: How do I purchase a plane ticket without a credit card?
A: Plane tickets don’t necessarily fall into the same category as car rentals and hotel rooms. With a plane ticket there is no chance of unpaid damages, thus making a deposit or a “hold” unnecessary. You can use a debit card or go directly to the ticket counter and pay cash instead of using a credit card.

The Advantage Challenge

ACCS is challenging you to ...
Help your teenager create a budget.

Creating a budget for your teenager is a great way to help him or her get practice for the future.

Look at how much money your teenager earns each month through an allowance or a job. Then, help your teen think of all of the things he or she needs to spend money on over the course of a month. For example, some teens must pay their own cell phone bill or put gas in the car.

Next, have your teen list all other expenses, such as going to the movies with friends.

Teach your teen to budget his or her money each month just like adults budget for their household.

Review your teen’s budget periodically and offer help when needed.

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