Dollars, Cents, and Confidence

Weekly tips for the grown-ups shaping youth into financially savvy adults

Hey there! It's Talk About Money Tuesday, your favorite day of the week! 🤑

All of the talk of the Federal Reserve meeting this week has me thinking about interest rates. The Fed is widely expected to cut rates, a move that has the potential to affect everything from mortgages to credit card bills. But while adults are on Fed watch, the data point below highlights that most teens don't know anything about an important snapshot of their creditworthiness...

Money Stat

80%

People with good or excellent credit scores can leverage that into lower interest rates on loans and credit cards and more favorable insurance premiums. Yet, 8 in 10 teenagers have never heard of a FICO score, according to a recent survey by Junior Achievement and Mission Square Retirement's Foundation. The three-digit score, which tells lenders how likely a person is to pay back borrowed money, has been around since 1989. Securing a car loan, a mortgage, or even an apartment, may feel far off to teens, but spending wisely and paying bills on time early on helps build a high credit score. And that positions them to save thousands of dollars over their lifetime.

Money in the News

The news: More people are using their rent payments to build or improve their credit score.

What it means for young people: They're more likely to have a thin credit history or none at all, which makes them what's known as "credit invisible." Since they're also more likely to rent, being able to turn to on-time rent payments as a credit score booster is a win. Rent payments are way one for them to gain the credit visibility needed to qualify for a credit card, mortgage, or other loans.

Tip for parents & mentors: One way to help teens or college students build credit is to make them an authorized user on your credit card. What does that mean?

☑️ They're allowed to use the credit card — without applying, qualifying, or having a job. However, you're responsible for all charges.

☑️ Your teen benefits from your good credit. When you make timely payments and keep your balance low, that's reflected on your teen's credit report. The flip side: If your credit takes a hit, so does theirs.

☑️ Since kids can become authorized users as young as age 13, they could have a strong credit history by the time they're 18. That's a plus, since credit scores are partly based on how long a person has had credit.

Not all credit cards report authorized user information to credit bureaus, so choosing the right card is key. And be sure to set clear boundaries for your teen. Decide if you want them to use the card or if they'll just be added to build their credit history.

Get in the Zone

Money skill to master: How to access and read a credit report

Why it matters: A credit report tells a person's financial story, which for teens and young adults is just beginning. Lenders, landlords, and even some jobs check credit reports to determine whether they can trust you to pay back money on time or handle it responsibly. So it's best for teens (and adults, actually) to know what their credit report says before others see it.

Try this: Once your child is 18, help them pull their credit report for free at AnnualCreditReport.com. You can now get free weekly credit reports from all three credit bureaus at the site, instead of once annually like in years past.

Teach your teen how to read their report, with a focus on catching possible errors that can affect their credit score. Such errors aren't uncommon — a joint investigation by Consumer Reports and Work Money found that out of 3,000 people who checked their credit reports, 44 percent of them found at least one mistake. If errors turn up on your teen's credit report, show them how to go to the appropriate credit bureau's website and file a dispute online.

Money Talks

When kids see adults whip out a credit card to pay for things, the whole transaction just screams, "FREE MONEY!" But, alas, it is not. It's crucial for young people to understand that when you use a credit card, you're borrowing money that you have to pay back.

Talk to small kids about how a credit card is like borrowing a toy from a friend who definitely wants it back. Meanwhile, tweens and teens are old enough to understand that credit card users who don't pay their full balance will have to pay extra, thanks to interest. Using real numbers to explain that interest makes an item cost more than its price tag can help drive this point home.

Loose Change

💳 This week is the 67th anniversary of the first credit card, which was distributed by Bank of America. The bank did a mass mailing of the cards to 60,000 Fresno, California residents — no application necessary.

🎓 Charging tuition on a credit card seems like a convenient way to pay for college and earn cash back or rewards. But you should think twice about doing it after reading about the pros and three cons of using a credit card to pay tuition.

🎁 Today marks 100 days until Christmas and a recent survey reveals that some people are already holiday shopping. The most popular payment option: debit cards.

Thanks for reading! Have youth financial literacy questions or money success stories that feature kids, teens, or college students? Reply to this email and ask (or share) away.

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'Til next time,

Audrey
Founder/Certified Financial Education Instructor

The FinLit Zone