Your story emphasises the need for financial education regarding credit cards. Responsible usage, lower credit limits, high interest rates awareness, budgeting, and understanding rewards are vital. Regularly monitoring credit reports is key for informed and responsible financial choices.
___________________________________________
“When I turned 18, my bank sent me a credit card with a 5k limit. I did not ask for this card, nor did I negotiate the limit. Of course, I spent it all over the next couple of years cause I had zero financial literacy and very little income as a student. I spent five years at uni, culminating in a master’s degree, and graduated first class. I also spent three of those years painfully paying back my credit card debt. I’m in my thirties now and still don’t have a credit card. It freaks me out. I know there’s a right way to do it, but I’d just rather not. So, can you all please educate your kids on credit cards? Some banks are vultures and prey on naivety.”
___________________________________________
Your experience serves as a cautionary tale about the importance of financial education, especially when it comes to credit cards. At 18, receiving an unsolicited credit card with a $5,000 limit left you unprepared for the financial responsibilities it carried. Credit cards can be powerful financial tools, but they require responsible usage. It’s essential for young adults to grasp that responsible credit card use means charging only what you can comfortably pay back in full each month. Accumulating a balance on which you pay high interest rates can lead to significant debt and financial stress.
Furthermore, banks might offer credit cards with high limits, but it’s vital to understand that accepting such limitations is entirely optional. If you’re concerned about the temptation of overspending, you can request a lower credit limit from the bank. High interest rates are a critical aspect to be aware of. These rates can rapidly compound debt if you’re not paying off the balance in full each month, making it imperative to comprehend how interest can affect your finances.
Encourage young adults to develop strong budgeting skills, prioritize financial literacy, and learn to distinguish between their wants and needs. If they decide to acquire a credit card, it’s crucial they use it judiciously to establish a positive credit history, which will be beneficial for future financial opportunities. Additionally, understanding the rewards and perks associated with credit cards is essential. While these benefits can be advantageous, they should align with the individual’s spending habits and financial goals. Lastly, regularly monitoring credit reports for accuracy is a fundamental practice. By educating young adults about credit cards and nurturing responsible financial habits, they can make informed decisions, avoid unnecessary debt, and build a solid financial foundation for their future.
Hope this helps.
Regards, Clive Fernandes (Financial Adviser)
Director – National Capital
Disclosure: I am the director of National Capital, a KiwiSaver advice firm. The views expressed in this article are the views of the author. The information provided is of a general nature and is not intended to be personalised financial advice. You may seek appropriate financial advice from a Financial Adviser to suit your individual circumstances or contact National Capital.
