“Would you like to save 5 percent on your purchase today?” the Target store checkout clerk asked on a recent visit.
I answered automatically to the credit card offer, “No, thank you,” and signed the electronic signature pad for $71. My teenage daughter, who was standing next to me at the register, asked a question as we rolled our cart away that led to a 20-minute teachable moment about personal finance: “Why did you say ‘No’?”
Higher interest rates, fewer shopping choices
I never take the retail store credit card offers, I tell her. As we walked out of the store, bags in hand, I explained that store credit cards almost always have higher interest rates. Even though I don’t carry a balance and I pay my credit card bills off in full each month, that 5 percent savings still isn’t worth it to me to sign up.
Why? Unless they are co-branded with a Visa or MasterCard logo, you can only use them at the store that issued the card. I couldn’t buy gas with the Target card or use it to pay for meals at restaurants.
My daughter nodded and, I hope, absorbed what I was saying.
Financial literacy experts tell parents they need to find teachable moments to share their wisdom about money and finances to their children. Since she had asked, I took the opportunity to elaborate. I think she tunes me out when I offer unsolicited advice (parents, you know what I’m talking about).
I explained that my Citi Forward credit card — the one I used for the Target purchase — could be used anywhere and that I was earning rewards points every time I used it. When I earn enough points, I redeem the points for $50 gift cards to our favorite restaurants.
She wanted to know how Citi makes money giving away gift cards as rewards. Another good question. So, I went over interchange fees (although I avoided using the word interchange). “Target pays Citi a percentage of the sale we just made,” I told her. “Citi uses part of that money to buy rewards prizes to give to rewards cardholders.”
A card of her own?
She asked about how she could get a credit card and the difference between a debit card and a credit card. Again, very good questions. I gladly answered.
I briefly went over the federal law (the Credit CARD Act of 2009) that restricts someone her age from getting a card in her own name unless she has a co-signer on the account or can show she has income and the ability to repay her debts. I went over piggybacking with credit cards — not the childhood game — and how a parents’ good credit payment history could be reflected on a young person’s credit report if he or she becomes an authorized user on the account.
Then driving home, I went over why it’s important to have good credit.
“When you want to get a car or buy a house, no one is going to lend you money if you have a bad history of paying your bills,” I explain. “They want to know that you’re a good credit risk. If you’re not a good risk, you’re going to pay more in interest for the loan than other people with really good credit.”
My daughter seemed attentive throughout the conversation and I was happy to give her that money advice. Now, I just have to repeat that episode another 10 times to make sure it sinks in.
See related: Just say no to store credit cards, 6 tips to use store credit cards the best way, 2010 retail credit card survey