Many times in parenting, we are given a single piece of advice, though it may be phrased in a variety of ways: "Go with your instinct." "Trust your gut." "You'll know in your heart what to do." The problem, sadly, is that quite a few of those instincts are way off base when it comes to matters of money. What we really need is to know when we should stop trusting our intuition.
So, for this episode of the Motley Fool Answers podcast, Robert Brokamp and Alison Southwick invited New York Times best-selling author Beth Kobliner into the studio to give all the moms and dads in the audience some great tips on how to raise financially savvy offspring -- specifically, tips that run counter to what your first instincts might be.
In this segment, she digs into a problem that today's parents didn't have when they were in college. Back then, an undergrad could get a credit card in their own name with almost no effort. Now, if you're under 21, it takes income or a co-signer. And, of course, we want our offspring to start building a good credit history early, right? Not so fast. Here's why putting your FICO on the line for Junior is the wrong move.
A full transcript follows the video.
This video was recorded on May 15, 2018.
Robert Brokamp: The fourth instinct. "I'm going to co-sign a credit card with my kid before he goes to college to help him build up credit."
Beth Kobliner: This is one of the ones where I've been hearing horrifying stories. Again, parents come over to me after I talk, and they say, "You know, I co-signed a credit card with my kid because I thought that would help them build credit, and they messed up. And not only am I, as a parent, responsible to pay it back, but I also am finding it hurt my credit score."
Kobliner: So, I'm going to have more trouble getting loans, and a mortgage, and a lower-rate car loan. It's different these days. When I was in college, when you walked onto the campus, you'd see tables, and they would be handing out credit cards.
Alison Southwick: Frisbee!
Kobliner: Frisbee! T-shirt. Why did we want frisbees and t-shirts so much? I don't know.
Southwick: People will do anything for a frisbee.
Brokamp: They used to give away free plane tickets. That's how a lot of my friends would get tickets home for the holidays.
Southwick: I love that.
Brokamp: Yeah, the good old days!
Kobliner: You know, you walk in, somewhere, and you sign your name. Nobody cared if you had a job. In 2009, President Obama stopped that, and he said in order to get a credit card you should either be 21, you should have some income, or you can have a parent co-sign. And it's the last one that's really still problematic.
The good news is college credit card debt has gone way down. Kids who have debt -- leaving college with lots of debt -- that's gone way down, but when it comes to credit card debt and also student loan debt, the kids don't get that much credit card debt in college anymore, but the problem is the idea that the only way you can get it is if a parent co-signs, parents have to say no. Parents should just say no to co-signing a credit card with theirs kid.
Tell your kid you can wait until you have the income to do it, or you're 21, and then you can get a credit card. And, of course, tell them pay it off in full each month. That's what you should be doing. I think also going to college freshman year is stressful for kids sometimes, and they're away from home for the first time. You don't have to put on top of that credit card debt and worrying about paying their bills. Wait until junior year, senior year.
I think in my day it was more difficult to establish credit. That was the hard thing. Nowadays if you're 21 and you're in college, you'll get a credit card.
Brokamp: But you make the point that you shouldn't wait until the kid is 21 to talk about building a credit score, and actually even checking their credit score before then.
Kobliner: Right. You should check it earlier with them and that awareness -- you can talk about it and educate your kid and say, "You know what? When you do get a credit card and you make a late payment, that is not just going to the professor and saying, 'Ooh, can I make that up?It will be on your credit score for seven years.'" I think those kinds of lessons that kids don't learn in high school or in college are important as parents to give those lessons and just talk to kids about that.