In the thousands of lessons parents hope to impart on their children, proper use of credit cards is often forgotten.
However, given credit card debt in Australia currently sits at around $32 billion, or $4,300 per card holder, it’s a talk that should receive greater attention.
Here are the four important points to convey to your child about credit cards.
Credit cards are not a tool to increase buying power
One of the biggest traps an individual can fall into is confusing their credit limit with their spending budget. Minimum payments can give the impression that you can delay paying off the outstanding amount for months at a time.
This is what leads consumers down the path of buying things they cannot afford, trapping themselves in a vicious cycle of debt. Make sure your child understands that the only purchases they should be putting onto a credit card are ones they can pay off completely at the end of the month.
Credit cards can help to improve their credit score
Although research suggests that millennials generally mistrust credit cards and banks, it’s important they understand that credit cards can be very beneficial when it comes to improving their credit score.
It’s also important that parents emphasise that if used correctly, a credit card can help their child build their credit history – which will be used in the future when trying to take out a mortgage or apply for a loan.
Credit cards can save money
In recent years banks have begun to place more emphasis on credit card rewards in a bid to secure new business. Generally, this growing competition has benefited the consumer, from free flights to travel upgrades, vouchers, discounts and cash back offers.
However it is important to convey to your child that while many of these deals are great, if used incorrectly, the costs of owning and using a credit card can quickly cancel out the benefits of these offers.
Be aware of deceptive practices
Unfortunately some banks and credit card issuers will attempt to take advantage of vulnerable consumers in the pursuit of business.
Convey to your child that should they happen to fall victim to deceptive advertising practices or any other underhanded technique by a bank, a complaint can be easily submitted to the Australian Competition and Consumer Commission.
If you, or your child, are ever in need of financial advice, reach out to one of our experienced ChapterTwo consultants today, and benefit from our comprehensive service.