In our culture, oftentimes parents fail to discuss finances. Whether due to a lack of knowledge or a lack of money, there were no discussions about money.
Growing up, my mom was always robbing Peter to pay Paul! Many other parents were in the same position, busy trying to keep their heads above water while not wanting their children to know or worry about what a struggle it was as black people to simply survive.
Consequently, when most young adults move out, they have no understanding about how credit works, I didn’t. No one explained that when I received my first credit card with a $300 credit limit, I shouldn’t spend $300! When the bill came, the minimum payment was $15 so I paid $100. In my mind, that meant I could skip the next month’s payment because I paid more than they asked. Imagine my surprise when I went to purchase a small item and was told my card was canceled! After a trip to the credit department, they explained that every month you must make a payment. Additionally, to protect my credit score, I should never use more than 25% of the credit limit. Learning that my credit history is built from my first credit card and since it was canceled, I now had a negative score on my credit report.
A negative credit score makes it difficult to get credit for major purchases. As your children get older and want a loan to purchase a car or a home, the higher their credit score the lower their interest rates and vice versa.
It is important to explain to your children that they must be careful with debt. Credit cards are not free money. Interest is charged every month, which adds to the monthly balance. If a consumer doesn’t have the cash to pay the bill in full, then they really can’t afford the items being purchased. However, if one can only afford to pay in installments, monthly payments need to be made on time to avoid adverse credit reporting, and it should be understood that the total amount paid back will be more than the actual amount spent for the items purchased because interest will be added.
It is important to teach children how to budget and save for the future. One way to do this is by showing them how much money it takes to run your home. Include the cost of rent/maintenance fees, mortgage, food, clothing, etc. Tell them how much money comes in and what has to be paid out each month so they can see what’s left. In addition, explain how banking works. If you’re not sure how to explain it, get financial information from your banker, the web or even magazines and periodicals to share with your children.
Parents, we must take charge of preparing our children to handle their finances. My goal is to help our EG community bring financial awareness to our children so they don’t make the same mistakes we made.If you have questions regarding this article, please drop us a line at EGGazette@gmail.com.
Originally published in EG Gazette 2023 Summer Edition.
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