Taking a Swipe

Teens should learn how to use credit cards now so they become financially responsible adults.

Ilana, a senior at Ma’ayanot who chooses to remain anonymous, is turning 18 in a few weeks. Similar to many other 17-year-olds, she is looking forward to having her provisional license promoted to a standard license. This is only one of many privileges she will be granted due to her legal coming of age. In addition, she will be allowed to register to vote as well as purchase lottery tickets. Little does she know that on her 18th birthday, the most important privilege she will be granted is the ability to have a credit card under her own name. Instead, she will continue to use her parent’s credit card rather than opening her own. 

“That’s just the way it happens in my family; when we turn 18 my dad gives us a credit card,” said Ilana. “I never really thought about having it any other way.”

When we were younger, many of us received an allowance from our parents. Other than that, our parents took care of almost all of our expenses and finances. However, as we enter adulthood it is not too early to begin taking control of our finances because before we know it, we will have no other choice. 

A valuable lesson can be learned from our forefather, Jacob, when he prepared to meet with his brother Esau. Tradition tells us that after his entire camp had departed, Jacob immediately went back to relocate a vessel that was left behind. Many people wonder why a prominent man like Jacob would seemingly waste his time for the sake of a measly vessel. Rashi notes the importance of sanctifying every possession that we own; every penny that we have is a penny that can be used in a positive way. Jacob understood this concept and without taking even a vessel for granted, made sure to appreciate everything that he was fortunate enough to have.
So too, as teenagers, we must place emphasis on all our belongings and expenditures and begin focusing on our own balance sheet. To do so, it is important to learn the importance of a credit card as well as how to use one. 

Humans are not particularly adept at assigning the appropriate vigilance to costs that come later on in their lives.  Instead we give disproportionate attention to immediate costs while disregarding those in the future. Hence, in recent years the national savings rate actually dipped below zero percent, according to Robert H. Frank’s “The Economic Naturalist.” Not only did people refuse to save money, but they also spent more than they even had. 

The solution is not to avoid swiping the plastic altogether. There are substantial advantages to using credit rather than cash. I know that for my grandmother the rewards on her credit card provide her with enough local restaurant gift cards to feed an army. That is money she would never receive back by using cash. 

Credit card companies offer warranty protection and allow you to dispute charges that you did not make. If you drop a wad of twenties and did not realize until minutes later, that money is gone. In addition, credit card statements summarize what you are spending on and when.  Many teens would notice spikes in their spending during the summer, when they are away from school and often making money. These tools help us manage our money so that we can make optimal use of each penny.

Using a credit card responsibly has added benefits as well.  Imagine trying to make a major purchase with cash. A car dealer would stare at you puzzled if you walked in with 20 grand. Large expenses need to be financed if they are to be afforded at all. 

If everyone waited to have enough cash to buy a home, the majority of the population would be renting or homeless.  It is for this reason that making a purchase without money on hand is not necessarily irresponsible. Having a strong credit score will enable us to receive reasonable interest rates. A credit score is a number that corresponds to a person’s credit history. The score represents one’s creditworthiness.  Having no credit score at all is almost as bad as a poor credit score.

A credit score goes even beyond purchases though. “Credit is no longer just a financial aspect.  Fifteen years ago, your credit score only mattered for significant purchases.  Today, it is a reflection of your credibility,” said Martin Sabo, credit expert and account executive at Fidelity Payment Services in New York City. “Employers look at credit scores at job interviews. If you can’t manage your own money, what makes you reliable enough to manage anyone else’s?”

People who consistently use cash rather than credit are at a disadvantage. Without credit, one cannot make the most use of every penny they have or will soon have. Such people claim that credit leads people astray and into unrecoverable debt.

“Blaming the credit card is incorrect. It is human incompetence.  Even with cash you can go wrong,” said Sabo. Better understanding how to use credit cards will result in a financially secure life that could never be achieved by only utilizing cash.

Teens should first use their credit cards for small purchases such as dinner or the movies to get the gist of paying a monthly bill. Paying dues on time is vital; credit card companies often have extremely high interest rates for outstanding debts.  From there, move on to bigger expenses like a new laptop or television.  Even if your parents will reimburse you for the bill, it is best to have the credit under your name rather than theirs.

Sabo identified the two most important guidelines to be aware of before swiping your credit card. “Do not live beyond your means. When you see that you are not saving enough, you need to tighten the belt.” If you do not have the money to live a particular lifestyle now, you cannot be certain that you will be able to live that lifestyle later.

“Credit cards were designed as a short term lending vehicle,” he said. “ Only carry a balance if your salary is seasonal.” If you work part-time during the school year and full-time during the summer, keep this in mind when making a purchase with a credit card. Keep in mind when money will come in and when you are about to enter a dry period. Credit allows you to live comfortably throughout the entire year.

Having been informed of the benefits of credit card use Ilana has a new perspective on managing her own finances. “I am certainly more inclined to have my own credit card having seen all the added benefits,” she said. It wouldn’t hurt if we all came to this realization.

Nis Frome  is a senior at The Frisch School in Paramus, N.J.

This article is reprinted from October 30, 2009.