Fine print, Living with credit, Rewards

Grab teachable moments when you can for teen money tips

Connie Prater

“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

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  • Scott

    Hi Connie! I think you have a valid point about the discount – I have used store (Kohl’s) because of the promotions. Plus I shop there a lot. I would add that it can help if you pay in full each month–you use them and pay no fee.

  • I agree that paying the credit card bill off in full each month is the smartest route to go with rewards cards — otherwise your “rewards” will be eaten up or significantly reduced by the interest that you’re paying. The same is true with retail store cards. To get the most of the store promotion, you need to pay off the balance in full each month so you don’t incur those higher interest charges.

  • Tara Lynn

    Awesome teaching moment. I agree 100% about retail credit cards. They are not worth the high interest.