Credit Cards & Young People

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I think its a good idea for young people,over 18 years of age, to have one credit card, provided they use it with caution. There is no doubt that credit cards can quickly get you into trouble if improperly used. That’s why its a good idea for a young person getting a credit card to seek advice from a mentor who has not allowed credit cards to dig a financial hole that they will never get out of.

So what do I mean by “use with caution”? Well, there are two ways to use credit cards. One is to see them as an opportunity to live beyond your means and borrow money on a long-term basis. This is the “going into debt” model of credit card use. People rationalize this by saying that they are not really living beyond their means, since they will eventually get the money to pay off what they are purchasing now. They argue that the would have eventually bought all of the things they are getting now, its just that they are doing it all at once and then paying later. The problem of course is that it is very difficult to predict what your long-term buying power will be. The accumulating interest from long-term credit card debt, which lowers your buying power, makes it difficult to estimate how much you can really afford to buy now and pay for later. Also, unforeseen events such as losing your job can make predicting your long-term buying power a guessing game. Going into credit card debt to buy more items now is very risky. Debts should be reserved for those things that are more important to purchase and come with lower interest rates than credit cards, such as mortgages and possibly car loans.

Another way to use a credit card is to use it to buy only as much as you can afford to buy now anyway. This may not make sense at first. If you have the cash to buy something then why use a credit card? There are several advantages to this. The biggest one, especially for young people, is that responsible credit card use builds your credit rating. One of the main things that is listed on a credit record is how well you use your credit card. Having a good credit record is important. Buying items with a credit card and then paying the balance before any interest accumulates is a good way to do this. A second good reason to use a credit card this way is that you don’t have to carry much cash with you. Also, with the right credit card you can accumulate points, such as air miles, that you can use. If your card is always paid before any interest accumulates, those air miles are free.

I suppose the last thing I want to mention is that, since it takes discipline to use a credit card responsibly, a young person can have one and use it to teach themselves to cultivate that discipline. There is risk, but the benefits can out weigh those risks if done right.


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