Don’t Blame Credit Cards

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It’s noticeable that credit cards have gotten a very bad reputation over time.  Credit cards are typically associated with negative connotations, such as high debt, bankruptcy, and simply fear.  It’s time to stop misdirecting the blame of these negative attributes to an inanimate object and start looking at ourselves, the consumers.  With proper money management education, we can curb a lot of household financial distress.

It is said that the average credit card debt per credit card holder is figured to be about $8,000. Of course, this number is skewed because a majority of consumers could have zero credit card debt, while the remaining have massive debt.  It’s figures like these that have driven people away from leveraging their credit cards more often.  However, the numbers themselves do not speak the whole truth.

There is a difference between good debt and bad debt.  Good debt is typically associated with investments that will help generate additional value in the long run (e.g. education, office equipment, advertising, etc).  Bad debt is something we are more commonly aware of, which are purchases that are not necessary for survival nor generates/appreciates in value over time.  These are also referred to as luxury items.  Though the amount of credit card debt may be massive on one end of the spectrum, who is to say that it is not being used for good debt?

Aside from the “high average debt”, credit card companies are also perceived as vultures for targeting unassuming consumers.  And though, it’s true, there are some companies that prey on consumers lack of due diligence (e.g. the Kardashian Kard), most do not.  They only provide the applicant with what they calculate he/she can handle, especially since financial institutions are so adverse to extending credit nowadays.  Just because financial institutions distribute the cards does not mean we should be condemning them either.  It’s up to the consumer to ensure they understand the terms they are getting themselves into and the best option for them.

The real concern of credit card usage lays with the consumers that are not living within their means and are over consuming luxury items.  Their finger should point to themselves for getting placed in this predicament. The question is then, how do we solve this?  The answer: provide better and earlier education in financial/money management.  Without proper education, the amount of bad debt consumers incur will continually grow, no accountability for their own actions will be taken, and the economy will be hurt even more.

The initiative to solve this problem is underway, such as the Ariel Elementary Community Academy mentioned in the article, teaching kids about money.  And other resources, provided by CreditCard.com, allow consumers to determine which cards are available for them and and list of their terms and benefits.

As some of you may have noticed, a list of examples for luxury items was not provided, because there’s always a way to rationalize how it can be considered an investment.  But let’s be honest with ourselves, we know what we need to survive, what truly generates value, and what we simply want because of the “cool factor”.

Don’t Be Lazy When It Comes to Money: Use A Manual Ledger

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If you’re like me, you find it really convenient that your credit card or banking institution provides you with a list of your most recent transactions when you log into your online account.  It really simplifies the book keeping process and that’s great.  Unfortunately, with simplicity comes laziness and with laziness comes mistakes/unwelcomed surprises.  I have to admit, I have fallen victim to this.

This past month, I have been going out more often with friends for birthdays, dinners, movies, etc.  This leads to me placing charges to to my credit card.  I usually check my balance once a week to make everything is in order, but with multiple things going on and again, laziness, I skipped a few weeks.  To my unwelcomed surprise, I spent a lot more than I have in a long while.  Luckily, I can handle it, but it blew out my budget for the month.

What could I have done to avoid this?  Well, I guess I could have checked my online balance more often, but not all transactions appear immediately.  And even if they do, they typically don’t include the additional tip you’ve added to the bill.  Going out to eat numerous times can really cause your total debt to be offset by a lot.  My solution is to keep a simple ledger going forward.  It doesn’t have to be anything fancy whatsoever, just follow these three easy steps:

  1. Create a new spreadsheet
  2. Create four (4) columns: Transaction Date, Vendor, Card, and Amount:
    • Transaction Date – the date you made the purchase or deposited money
    • Vendor – the place you made your purchase or return
    • Card – in case you have multiple cards, you can keep track of which one your spending with
    • Amount – the cost of the transaction
  3. Enter all your transactions each night through the receipts you collect

This is a tactic I used to curb my spending after college as well.  It worked wonders because it gave me a real time tally of how much I was spending and how much I truly had left in my accounts.  It’s also the idea of associating your purchase with additional labor and helps with memorization.  What does it help you remember? THAT YOU KEEP SPENDING MONEY THAT SHOULD BE SAVED!

Jobs, Ledgers, and Teenagers (Teaching Kids About Money)

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This article is part of a series on Teaching Kids About Money.

My next  suggestion in how to teach kids about money may seem a bit far fetched, but I’m pretty sure it’ll work.  Tell them to get a job!  Of course, I’m talking teenagers.  However, there are options for pre-teens to start making their own income as well, which I will cover later.  The best way to teach your kids the value of a dollar is to make them earn it themselves.  No longer will they take your busy day for granted.  If you cut them off from any additional income and they know the only way to survive is on their own, I’m sure they’ll learn to adapt quickly.  It won’t be easy and it could get quite dirty, but it’ll work.

I believe it’s a misconception that all teenagers are lazy and would rather spend their summer playing rather than finding a job.  Though there are a lot of kids out there that do prefer to let mommy and daddy pay for everything, there are also a good amount of teenagers out there who simply want their freedom and not have to rely on parental figures to supply them with money to have some fun.

Of course, having fun is great and a necessity (especially while younger), but you must keep insight the purpose of this exercise – teaching your kids about money management.  Make sure they open up a savings/checking account.  The great thing about banks nowadays is that you can check your balance online.  There is a slight defect though, the transactions tend to have a day or two lag before it’s realized within their systems.  So I recommend convincing your kid to manage their money within their checkbook or hard copy ledger.  Make sure they set aside time (about 10 minutes) a day updating their debits and credits.  This way, they’ll learn a good habit that helps ensure they won’t overspend.

Once a child learns how hard it is to make money and manage it, this will teach them to cherish and save their hard earned money.  At the very least, if they’re still spending their money frivolously, you can at least have a sigh of relief that they won’t be depleting your money.