Most of us would agree with the premise that education is an investment, because higher degrees and high grades usually equate to more money in our pockets. This statement can be proven with possible savings on our teen driver insurance policies if their GPA remains above 3.0 (see last week's article). However, this focus on achievement can become a burden for parents, especially when children learn to read and comprehend certain magazine articles. This situation becomes even more worrisome when authors argue that teens need credit cards, because the use of credit cards teaches financial responsibility.

When my daughter reads an argument that supports her cause, all my efforts to teach her a line of logic fly out the window. She no longer questions what appears to be an authoritative voice, she forgets to examine the author's intended audience, and she ignores any counter-argument in the article. She also refuses to back down until I answer her questions. This is the hairy part, because my response to her requests may not be rational. In fact, when Cora asked for her own credit card after perusing various articles about this matter in my financial magazines, I initially reacted with uncontrollable laughter. My response was not appropriate. I had to work hard to overcome this slight to Cora and to convince her that financial responsibility comes with investment, not with debt.

The answer to her question on whether she can currently have a credit card is "no." Therefore, my goal is to present rational reasons for a denial of credit, yet supply her with the tools she needs to maintain her self-worth among her peers (who may already have credit cards). This is an exercise of parental authority, or what I call "respectful manipulation," and here is how it works:

1. In line with the importance of education as an investment, a little language lesson was needed first. Etymology, or the historical transition of a word (in simple terms), is a useful tool to teach our teens the origins of our language. For example, "pay" comes through the French from a Latin root that appears in "pax," meaning "peace" and its English derivative, "pacify." So, to pay someone we ask them to leave us alone (don't chase me, don't call me at dinnertime, and the check is in the mail, etc.). "Assets" comes from an earlier form of the French "assez" which means "enough." This term was applied originally to the part of an estate needed to pay debts. Our assets may include a job, investments, and even a charming personality. However, the latter will probably not pay our bills. Historically, our language tells us we need assets to pay our debts.
   
   
2. Based on the weight of these meanings, I sat with Cora and we went over my credit card bills. She learned that each company has different rates and I showed her how these interest rates work (We also discovered that a phone call may be all that is needed to lower these rates). However, even with lowered interest rates, Cora realized these figures are often higher than the percentages we make on our portfolios. In other words, even though she makes money with her investments, it is usually not enough money to pay the interest rates on most credit cards, especially when we add annual fees and payments for insurance against theft.
   
   
3. The third part of this lesson was to point out that my daughter has no current assets other than her portfolio and whatever change is in her piggy bank. However, she also currently has no debt. Therefore, she is ahead of the pack, since she's actually worth more than her mother at the moment. In addition, if I allow Cora to have a credit card in her name (at her age, I would need to put her under my account and ask for an additional card), then I will also need to pay her bills. I will go further in debt, and that would mean beans for dinner every night. Would she like to eat beans every night? "No." Furthermore, what does she need to buy with a credit card that she can't buy with cash? After a moment, she admitted, "Nothing, really."
   
   
4. The last part of this lesson is the simple statement that money - although important for survival - does not equate to a person's real value. Other less tangible attributes contribute to self-worth. It doesn't hurt to ask our teens how they see themselves, because this helps us understand and build their sense of values.

At this point, Cora understood why she needs to establish her own assets before she can establish debt. I also explained the difference between "good" and "bad" credit. Both are established with credit cards or other debts that are either paid or not paid on time. One bad mark on a credit report can haunt a person for a long time.

But there are positive points to carrying a credit card, also. Beyond the benefit of good credit - which helps us maneuver through this consumer-driven society - credit cards are also useful for emergencies. When I think about Cora stranded with a flat tire ten years from now, I know access to a cell phone and a credit card will come in handy for her. So, I'm sure I'll re-evaluate the answer to her question in a few years.

In the meantime, hopefully she understands that a pocketful of plastic is not worth as much as a portfolio filled with investments. Although this sense of value is not used as a basis for her self-worth, these comparisons seem to go a long way to help her develop a sense of financial responsibility.

Until Next Week,
Linda Goin