When it comes to teaching young people about credit, there's no shortage of ideas on what to tell them.
In its DVD "College Credit for Life," the National Foundation for Credit Counseling encourages students to shop for a card based on annual percentage rate, length of the grace period and how the balance is calculated.
The JumpStart Coalition suggests that you let your tweens and teens examine your credit report, and that you and your kids read the terms and conditions on a credit-card statement.
That's all great stuff, especially for young adults who are actually applying for credit cards. But you don't want to inundate tweens and high school students with so many details that their eyes glaze over. To make a lasting impression, focus on the big picture and the basics.
For instance, let kids know that people who use credit cards spend more compared with those who use cash or checks. One study found that customers at fast-food restaurants spend 50 percent more when they pay with plastic rather than cash, says Baylor University marketing professor James A. Roberts, who studies credit usage.
Other things that adults understand but kids often don't:
• Credit cards are not free money. By definition they're "credit" cards, meaning that when you use them you're borrowing money from the issuer.
• The card issuer charges interest. Kids know that banks pay interest on savings accounts, but they're not always aware that banks charge interest at a much higher rate when you take out a loan.
• Don't max out your credit. Young people are more likely than older adults to charge up to their credit limit. But to get a top credit score, it's best to hold your charges to 25 percent of your credit limit or even less.
• Pay your bills on time. Credit issuers are watching how you handle your cards, and paying late is the worst black mark on your record.
• Blots on your credit record can affect your ability to get a job, rent an apartment, buy a car or get a cell phone.
• Pay your bill in full each month, if you can, and always pay more than the minimum. Use an online calculator to show kids that, for example, if you pay $50 a month on a $2,000 balance at 18 percent, it will take more than five years to pay off the debt. Pay less than $30 a month, and you'll never be out of debt.Mom and Dad, your kids will love to hear how you screwed up and then made things right. If you're still in credit trouble, take the opportunity to clean up your act.
Janet Bodnar is deputy editor of Kiplinger's Personal Finance magazine and the author of "Raising Money Smart Kids" (Kaplan, $17.95).< Send your questions and comments to [email protected].