College, Credit

How I Plan To Help My Children Avoid The Credit Trap (Part 2)

CLICK HERE TO WATCH MY SEGMENT ON CHANNEL 2 WSB ATLANTA WITH CLARK HOWARD

(This is part 2 of a 2 part series. Click here to read part 1)

Edit: I added these lines a few hours after writing this post: I live in Georgia and our state offers a “Hope Scholarship”. Basically, it is state-funded tuition, paid for by proceeds from the Georgia Lottery. I’m not a big fan of the lottery, and I have doubts as to whether the Hope Scholarship will still be around in 10 years. If it is, my children may or may not qualify for it. But, if it is there, and they receive it, we can use their “college savings” for room and board. As for “where” we plan for them to go… we are planning on saving enough for them to attend a state university, like UGA, GSU, or VSU. But, my kids are 7 and 3 and a LOT can change between now and 2017!

As I have stated before, I did not attend college, so I have never had to deal with the expenses associated with college (or college-life). Thankfully, I was able to find a job that I love which does not require a college degree. But, I fully expect that my children will attend college (or some type of trade-school, technical school, etc.) So, in an effort to provide for their college education and prepare them for financial prosperity, here’s what I am doing (or will do) to help my children.

1. I will (and do) talk to my children about money. I find it fascinating that we live in a day and age where our children are exposed to SO much information about SO many topics, and yet many teenagers graduate high-school (or college!) without a basic understanding about personal finance management.

2. I have created a “system” for teaching my kids how to handle “their” money. (If you’d like to read about how we handle “allowance” click here.)

3. I plan to save enough for my kids to ATTEND a quality college. (Currently, I am saving for college in Education Savings Accounts.) I have two kids, ages 7 and 3, and I plan to save $2000 per year, per child. If I save $2000 per child for, say, 12 years, and I get an average return of 8% on my money, that would equal about $40,000 saved, per child. ($2000 is the CURRENT maximum ESA annual contribution limit, but this amount will go UP, year after year. I will, of course, adjust my annual investment amounts, accordingly.) I hope to save enough so that my kids can START school, and if there is a “shortfall” in my savings, I will simply add “COLLEGE” to my monthly budget and help them as they go along.

4. I also plan to talk to my kids about the VALUE of education. One thing that I would NEVER do is make my kids feel like they are “financial burdens”! Seriously, I would sooner die than have my kids feel as if I regretted helping them, providing for them, having them, or “taking care of” them. So, I will never, ever, say “Don’t you know how much this is costing me?!?”. I will, however, stress how VALUABLE the education itself really is to their FUTURES. Already, at age 7, my daughter is learning the VALUE of a dollar, but she NEVER has to deal with a “guilt trip” from me about how much something costs. If she wants something, she either pays for it or receives it as a GIFT, no strings attached. The same will apply to her college education. I will GLADLY pay for her education and hope that my parenting skills (and the grace of God) have prepared her for LIFE.

5. This one may come as a surprise, but I plan on helping my daughter apply for, use, and make a payment towards, her first credit card. Why? Because, whether I like them or not, credit cards are here to stay and I want my daughter to know the “do’s and don’ts” associated with credit cards. That being said, I will also warn her of the risks associated with credit card mismanagement. Again, the whole “no credit needed thing” is about ME and how I plan to live my life. Only a fool would be so naive as to send his 18 year old daughter off to college, having never taught her about credit cards and credit card companies.  Edit:  After reading a few comments and emails, I am thinking about this particular point.  I’m glad that I have 10 years to decide how to handle this issue!

6. I plan to purchase automobiles for my children. (I may, at some point, use Dave Ramsey’s idea of “matching” the amount of money his kids could save, and then buying them a car.) My daughter will not need a car for nine more years, and I have no idea what our lives will be like at that point. But, I have to assume that I will have a quality, used car for her to drive. The same goes for my son. Whether my kids “work” outside the home will be based on how involved they are with school, school projects, athletics, music, gymnastics, etc. I am teaching my children to be responsible, by giving them various “jobs” around the house, but I want my kids to enjoy being “kids”.

7. I plan to help both of my kids open checking accounts, create budgets, and balance their checkbooks. In fact, in the months before my daughter goes to college, I plan to hand her MY checkbook, and allow her to “run” our families finances. Of course, I’ll be right there to help her and assist her, but I want her to get the “feeling” of “managing a home”. I will do the same with my son. (Of course, I realize that this is “easy to say” while my kids are so young, but I hope to be able to do this with my kids when they get older.)

8. I tell my kids, everyday, dozens and dozens of times, how special they are, how bright they are, how smart they are, how gifted they are, how creative they are, and how loved they are. I also do my best to discipline them fairly, consistently, patiently, and responsibly. In other words, I am doing, all that I know to do, to raise responsible, confident, loving kids. I am sure that I fail more than I succeed, but I believe in my kids and their futures.

9. I take my kids to church and I teach them to give. We give to our church, people in need, family members, friends and strangers. The BEST way to understand grace is to GIVE it.

If you have ideas or suggestions about raising kids who are responsible with money, prepared to face college, and wise about debt, please, feel free to leave a comment! Raising kids is HARD work, and, so far, no one has perfected it. I would NEVER claim to be an expert, but I the above 9 points represent “the best that I can think of for now…”

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13 thoughts on “How I Plan To Help My Children Avoid The Credit Trap (Part 2)

  1. Re: College expenses. One thing my parents did that really resonated with me: they agreed to pay for tuition at an in-state public school. If I wanted to go to a private or out-of-state school, they would contribute the equivalent to in-state tuition, and I had to provide the rest. And I did- mostly with scholarships, but it really made me appreciate what I was getting out of college, and probably made me focus more.

  2. What college/university do you think your children will attend? Have you called a college yet to inquire what their tuition is today, in today’s dollars? (or at least logged on to their websites to find out) Do you think $40,000 will be enough?
    For my children, their tuition was $30,000 a year! First they went to a state college (for $10,000 a year) and decided the education was below par. So they both switched to a better school (one was on a scholarship, which got lost in the switch along with most of the credits, so she had to go to school longer).
    I had only saved for the $10,000 a year. The kids had to take out low cost student loans to make up the difference.
    It’s difficult to plan and project the future. All you can do is your best and hope for the best.

  3. Have to say I disagree with getting the kids a credit card when they get older… you can teach your kids about drugs with out giving them a joint, so you can teach your kids about credit without getting them a card.

    As “Dave says” this is personal finance, so everyone will do what they think is right. For me, I won’t be putting my kids in Proverbs 22:7 as the
    borrower.

  4. Jay,
    Busted! I find myself in the strange position of sounding “pro” credit card. Yikes? Perhaps I will rethink this point… hmmm… thank goodness I have 10 years to worry about it! 🙂 (GOOD TO HEAR that someone out there is as anti-credit card as I am! Your rock!)

  5. I have to say I disagree with some of your well intentioned points.

    I think there is such a think as helping a child too much. I think you are looking at your dear, sweet children, and not realizing they will be teenagers.

    I fully believe in my children having jobs and contributing to their college education and their getting their first car. (and my kids are teens and two of them have jobs and ING accounts to save their money)

    I think EARNING the money themselves gives them much more respect for the hard work involved in life.

    I don’t want my children to feel “entitled”. Life just isn’t handed to them.

    While I know you adore your children (I remember when my kids were little)..life isn’t a world of people telling you how much they love and adore you and how special you are many times a day. It’s just not.

    I’d never help my kids get a credit card. No way no how.I think that’s just asking for trouble.

    Remember young adults brains are not fully developed, and their judgement can be lacking, and as teens, even late teens, can be heavily influenced by their peers. Parents are just well, not all that important to them.

    College I think a “quality” education is all relative. I think paying for a private univeristy is incredibly expensive (try $40K for one year of college–in today’s dollars) and I really do not think it is worth the $$ expended. I think one can get a quality education at a public university, and be just as employable when they graduate.

    Kids need their wings.

  6. MSM…
    I’m not going to get my “kids” a credit card. But, when my daughter turns 18 or 19, I’ll help her get a credit card (unless, like me, she has decided to live “no credit needed”) so that she will not be “alone” in the process

    As far as “work”.. my kids have chores, responsibilities, etc. I’ve been working since I was 14, so I know about work. My kids’ jobs (before 18) will primarily be helping around the house and going to school! My daughter is a competitive gymnast, and she goes to practice, 4 times a week, and has more dedication than most 20 year olds.

  7. NCN,

    I didn’t mean to offend you.

    One of my daughters is 16 years old. She is an honors student. Her GPA is 3.7. She takes Japanese, Trig, Honors English, and will be doing running start next year–FREE college! She also is Captain of her color guard,works a part time job, and in her “spare” time she volunteers for the National MS Society and the ADA. All around great responsible kid (yes she is a kid to me).

    I STILL will not help her get a credit card when she turns 18.

    I will, and do explain to her how credit cards can really dig her deep into debt, about interest rates, how one slip can take years to re-coup from and my negative experience with them. And how important it is to live within her means.

    Agree with the poster that said, you can teach your kids about drugs with out giving them a joint, so you can teach your kids about credit without getting them a card.

  8. While I admire your quest to inform your children about how to handle their finances, I have to disagree with you and some commentors regarding your views on credit cards.

    Many people have fallen vicitim to the “credit trap,” but debt, in some ways, is just like anything else- if you know how to use it properly, it can be a wonderful thing. If someone doesn’t carry a balance on a credit card, doesn’t pay an annual fee, and always pays off the outstanding balance on time, then they basically get a 30-day interest free loan from the credit card company and possibly some cash/bonus points if they have a rewards card of some sort. I don’t have kids yet, but I fully intend on getting credit cards for them when they are financially ready and mature enough so that they can learn how to properly use credit cards as well as establish a credit history at a young age instead of being sheltered from the dangers of unwise credit card usage.

  9. I really like everything you have to say here and I think you are doing your kids a huge favor by educating them about finance and staying involved with them. The one thing I might disagree with is the car issue. While buying your children a car is helping them financially so they don’t have to spend their own money, you aren’t teaching them anything of value here. My parents forced each of their 4 kids to purchase their own cars at the age of 16 or whenever they could afford it. As furious as we might have been because we had to buy our own, looking back on it we each agreed it was a worthwhile arrangement. While I only had enough money at the time to get a $2,100 clunker, it taught me the values of managing my money, taking care of my property, and taking pride in what I owned. I think you will find your children clean, check the oil, fix dings/scratches, and overall just take better care of something when the buy it for themselves. Not to mention the pride factor for a teenager to own such a significant item. I understand your logic about helping them financially, but with all the other steps your taking, it might be worth the valuable lessons to let them buy their own car (with help/advice from the parents on car searches for safety reasons and ensuring they don’t get ripped off). Just a thought…

  10. You need to teach children about CC. Not teaching them is like not teaching them about safe sex, sure you don’t want them to have premarital sex but do you really believe your 30 year old unmarried daughter or son isn’t going to be having sex? Um, no. So will you teach them about CC and sex and being responsible or let other kids teach them?

    CC are not evil, nor are CC companies. What happens is irresponsible people use CC. I left home at 16 and my mom certainly didn’t want me out in the world without a CC. She also taught me how it worked, explained in depth. Same with sex.

    Just cause you don’t like something, doesn’t mean your kids won’t. And worse just because you don’t believe in it doesn’t mean your kids will as well. Life comes back to bite you in the behind. I think you might as well give your kids every tool out there and educating them as throughly as possible.

    And NCN you rock if you buy your kids a car. So no car loan? This I might disagree with, I’m thinking that maybe my kids might have to have a car loan so they never get one again after that first loan. I learned a lot by having my first and only car loan. Not for a lot but for some. And yes I could have gotten a used car for $5k and paid cash, but I didn’t. But I also was 20 and lived 3k miles away from any family. So I didn’t have a car to go car shopping, I had to depend on friends. I didn’t have an adult to help me car shop and the dealers were awful. Not knowing anyone, nor any mechanics since I had no car, I didn’t exactly have stellar reccomendations for how to buy a used car. When I have kids I will hope to be near enough to help them buy a car. And not throw them to the sharks, which my parents didn’t want to but it couldn’t be helped, unless they flew all that way to help me, buy a car.

  11. I have to say you are helping your kids too much as msmommoney said

    Give them space to make some mistakes so they can learn from it. I know you want to protect them, but you are making their world to perfect

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