Like every 5-year-old, my daughter seems to have little understanding that the goods in the store cost money. Despite my explanations, she appears to believe that we can throw anything into our shopping cart, swipe my credit card, and have nothing else to worry about. While the responsibility of using a credit card only begins at the cash register, it is one of the only visible times that credit cards are used in front of our children. Here are five aspects of credit card use that are rarely seen or spoken about:
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1. Interest costs a lot. The majority of credit card users in America routinely carry a balance on their cards. And when they do, that means that each and every purchase is incurring interest from the day it is charged until the day it is paid off. And since credit card interest rates are not small, typically running between 10% and 20% APR, most cardholders are ultimately paying a lot more for their purchases than what the receipt says.
2. Fees can be an unexpected surprise each month. Even without interest charges, cardholders are faced with a number of fees that they hardly recognize themselves, let alone share with their children. Common ones include annual fees, foreign transaction fees, balance transfer fees, late fees and cash advance fees.
3. Some people are paying off college credit card debt long after graduation. When students need to pay for tuition, books, or expenses, but are out of cash, their credit cards are frequently used to fill the gap. But when their dream job doesn't arrive promptly after graduation, credit card debt can linger for years. Often it is in their 20s that young adults finally realize the true costs of credit card use.
4. Credit cards can make people spend more. Credit cards entice their users to spend more in three ways. First, they offer the ability to finance unaffordable purchases. In addition, reward cards offer points, miles and cash back for spending. And finally, credit cards' ease of use encourages cardholders to effortlessly make charges they might have thought twice about if they needed to use cash or write a check. Why don't adults tell children about these things? They might not even realize it themselves.
5. Credit cards can offer great benefits, but I don't want my kids to get into trouble. In contrast to the other problems with credit cards, adults may keep quiet about all the benefits they receive from credit cards. Certainly, it is possible for cardholders to avoid interest, fees, debt and overspending while earning valuable rewards. But since so many are unable to successfully achieve this mastery, adults can be wary of encouraging credit card use. Credit card use is not a dirty habit that should be shrouded in secrecy. Actually, it is our responsibility as adults to teach responsible credit card use so as our children grow into adults they understand both the hazards, and benefits of credit card use.
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