What Happens When Teens Learn How To Manage Credit?

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Hey everyone, if you’ve been following along in the past few weeks, you’ve heard a bit about Katie A. I’ve been anticipating this day since the day she first contacted me. With today’s post, Katie officially becomes a personal finance blogger, and let me tell you…the post is incredible. Everyone in the CNA Finance community, welcome Katie A, our new friend!

This is the story of how I achieved a 700+ credit score by the time I graduated from college.  The process started when I was about 15 years old and way before I ever opened up my first credit card.

First, let me give you some context: about the only personal finance advice I ever got from my parents as a kid was to (1) save aggressively and (2) never get a credit card.  Sound familiar?

In other words, I didn’t learn this stuff at home.  In high school I was lucky to be in a very small group of students in a 10th grade class about personal finance, where the teacher advised that we get a credit card as soon as possible.

I was a teenager, so naturally, I was instantly interested in learning more – mostly because it was the exact opposite of what my parents had taught me.  🙂

I had absolutely no idea how credit worked, and I had perceived it to be a bad thing.  Of course, my teacher gave great advice about how to avoid debt by managing credit cards well.

Remember, I was only 15 at the time and I didn’t have a job – I wasn’t even close to being able to apply for a credit card.  But I knew this information would come in handy in a few years.

A few years later, as my 18th birthday approached I started gathering the application materials for a credit card: proof of income, report cards to show that I was a good student, a recommendation letter, etc.  And a few weeks after my 18th birthday I had officially established credit – while I was still in high school! 

Of course, I practiced my teacher’s advice about managing credit.  The results?  By the time I graduated college four years later, I had a credit score of just over 700 and a credit limit of about $10,000 between two credit cards.

Even more results: by the time I was 25 I had achieved a 780+ credit score, had been approved for a loan for grad school (without a co-signer), and had been pre-approved for a mortgage at an excellent rate (also without a co-signer) – these accomplishments are not the norm, as reported by a recent article in the Los Angeles Times.  And it all started at age 15.

Learning about credit at such an early age made a huge impact on me and made me aware of how powerful my decisions could be.  Plus, by the time I left the nest to attend college in a new city – I was used to managing my credit card, I knew about the dangers of debt, and I was aware of expensive credit card offers.

I recall many banks on my campus offering free t-shirts to students who applied for their credit card.  Crazy, right?  Even crazier: this marketing tactic actually worked!  Students would actually apply for cards, without  knowing what they were getting into.  I was lightyears ahead of my peers because I had learned about all this years ago in 10th grade.

Teaching teens about credit is an opportunity, not a risk.  In her famous TED Talk, cognitive neuroscientist Sarah-Jayne Blakemore says that the teen years are “a period of life where the brain is particularly adaptable and malleable. It’s a fantastic opportunity for learning and creativity.”  The teen years are a great time to teach this stuff for many other reasons:

  • The sooner they learn it, the greater the impact will be
  • By the time they leave the nest for college, they’ll be well informed and prepared to make important financial decisions on their own
  • With student loan debt on the rise, knowing how debt works and how to minimize it is an invaluable skill for teens to master

Teaching credit management early on will have a greater impact and will give teens a head-start.  When my parents refused to talk to me about credit – they were only trying to protect me from the dangers of debt.  But ignorance is not productive – and in this case, it would have inadvertently hindered my development.  Once you get over the fear of teaching your kid about credit, the next challenge is: how to teach it?

For more information about teaching your teen about credit and personal finance, head over to my site and sign up for my newsletter where I’ll share very specific actionable recommendations about how to do this.

But if you really want to get started, here’s a simple action step you can take TODAY to start the conversation about credit.  You don’t have to teach them everything all at once.  Start small and be casual.

Next time you’re discussing school grades, you can get the conversation started by saying something like, “Did you know I still get graded on stuff?  The grade measures how responsible I am with money – it’s called a FICO score, the higher the score the better.  And once you leave school, you’ll continue getting grades too.

That’s it!  You’ve successfully gotten the idea of a credit score on their radar – in a way that they can relate to: by comparing it to grades in school.  And you can leave it at that, you don’t even have to get into what FICO stands for, or what a credit bureau is.

The purpose of this very short, very casual conversation is to get this idea on their radar and to inspire curiosity.  They will naturally want to know more if you leave them with a little bit of mystery.

In the comments below, please share with us how the conversation went.  Were you surprised?

Want More To Read? Here Are 2 Great Posts From Around The Blogosphere!

Why Do You Live Where You Live – In this post, Andrew shares a bit about why he lives where he does and asks the question, “Why do you live where you live?” There’s some great responses in the comments!

5 Common Credit Myths – In this post on Gen Y Finances, you’ll learn some of the most common misconceptions about credit and credit cards!

 

36 COMMENTS

  1. A score of 700+ plus isn’t that remarkable for somebody with no derogatory items on their credit report. It’s very easy to maintain a credit score over 700, pay your credit on time and keep your utilization under 10%.

    I’ve had clients received a score of 750+ within 6 months using only secured cards.

    • It’s def easy to build up a high credit score – IF you know what it takes. Education is so important in this area especially for youth since they don’t teach this stuff in (most) schools.

    • Hey Katie, my pleasure, it’s a great post, and I’m happy to have you as part of the CNA Finance community! I can’t wait to see the driving force you become!

  2. Great first post, I only wish I read this 15 years ago! My first experience with credit cards was in college and it was horrendous. I got into credit trouble early on and it took me a long time to get my credit back in the 700+.

    I wish I had your teacher when I was 15.

    • I recall when I was in college, credit card companies were allowed on campus. They’d give away free t-shirts in exchange for a credit card application! The laws have changed since then, but this is often where a lot of young adults get tricked into signing up and racking up consumer debt. Early education is so important in this area!

  3. Hey Joshua, thanks for mentioning my article. Hey Katie, welcome to the personal finance community. It’s great that your teacher introduced personal finance lessons to you and your classmates. It really needs to be a bigger focus of the curriculum. I still remember a younger cousin who was in high school at the time say, “just put it on a credit card,” as if the credit card magically pays for an item. I also remember all the companies giving out freebies in college for students to sign up. Credit cards are great, as long as it is used responsibly.

    • It’s so funny, I’ve heard teens talk about credit cards as if it were free money! Many do not understand that it needs to paid back – WITH INTEREST. Further, many don’t understand how quickly the debt can build up. The dangers of ignorance at this stage should be a big concern for both teens and parents.

  4. While I’m on the credit cards are evil side of the discussion, I couldn’t agree with you more about personal finance and debt discussion starting at an early age. Congrats on your first post!

  5. I applied for a credit card as soon as I was 18, and my mom actually suggested it so I could establish credit. She also told me to leave a small balance on it, though, so not all the advice was sound. Even so, I learned to avoid debt as my parents struggled with money my whole life. My credit score has never been below 700.

    • That’s amazing – I think it’s great that you had your mom’s support in opening up your first card at such an early age. Would you say that learning about it early in life played a big part in your high credit score?

  6. Welcome Katie!! It’s so true that the sooner you start building credit responsibly, the better you will be in the long run. I hate that people have become afraid of credit when all they need is a little education and guidance on the right steps like your teacher gave you and they would be so much better off.

  7. My Dad actually really helped me, my sister, and brother all establish credit before we graduated high school. We went to a private school that was 17 miles from our home (people lived all over the metro who went there). So my Dad compromised with us by saying we wouldn’t be on the hook for gas and he also gave us an (old) car to drive. We also got credit cards that we could use for gas. My sister used hers at fast food places a few times and got hers taken away from time-to-time. I never did, though I did get stuck filling up the car when she lost her card. But the bottom line is when I applied for my first “own” card in college, I got a huge credit line. That’s when I realized my Dad essentially gave us a huge head start in establishing credit.

  8. I never had a credit card since before and even until now that I do have my own job and own family. My parents didn’t introduce credit cards us before because even they they didn’t own one. But for me there are lots of advantages when you the team’s own and learn how to manage a credit card.

  9. Sounds like your experience is similar to that of my wife, although hers was on a much smaller scale. She had good credit coming out of high school because her parents advised her to get a “gas” card. It was a credit card she used to buy gas and paid it off every month.

    My parents on the other hand were more like yours. I never had any credit cards until I was about 22.

  10. Welcome! Great post to start off with!

    When I left for college, my dad helped me sign up for three credit cards to help me pay for books and such. I had literally no clue how credit worked. I was to use the cards, and my dad would handle the bills back at home, paying with money I had earned working. Four years later, I was turned down for my first car loan because of my “colorful” credit history. Turned out my dad had missed many payments. My credit score was in the toilet, and the interest rates for all three cards were at 28%. That was my crash corse in credit. At no point did I learn about credit from my parents or from school.

    A lot of people just dismiss credit cards altogether like your parents did, but they can be helpful tools. I will definitely teach my boys about credit when they can understand.

    • WOW, it’s too bad your parents didn’t give you the full run-down about credit or full control of your card. I’m glad you’ll educate your kids about credit – would you let me know if you use my technique about starting the convo? I’d be interested to hear about your experience!

  11. This was a great post! Welcome to the blogging world Katie! Talking about credit, the myths, advantages and disadvantages is really important for a financial education. This is a tool that if you know how to use it, you can do great things. Your website seems interest, covering financial education for teens. Let’s remember: “Investing implies a risk, but not to invest in your financial education is the highest risk of all.”

    Kudos for you Katie and keep going!

    Regards!

  12. Financial Education classes have just been introduced in the UK. Unfortunately they appear to be a “love me” tactic by the government as we approach the next general election, and no money or resources (or even thought) has been put into their implementation. We should all be so lucky to have a teacher like you had, Katie.

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