Being a dad is rewarding, but it’s also a huge responsibility. Between soccer games and homework help, no one could blame you for being a little overwhelmed!
This Father’s Day, the Nerds want to help you stay informed about a topic you may not have considered recently: your credit card. In fact, there are five important things every dad needs to know about his plastic:
1. You’re a powerful force in determining your child’s future credit card habits
Parents intuitively know that they play a big part in shaping their kids’ interests, attitudes and habits. But experts believe that parents may be the most important force in determining their children’s financial behaviors. What’s more, these habits are created at a very early age – possibly as young as age 7.
Setting a good example for your child when it comes to credit cards is essential. Paying your bills on time and staying out of debt will go a long way, but you should also take every opportunity you can to discuss money and credit with your kids. This will set them on the path to a healthy financial future.
2. Credit card debt could impact your family down the line
It might be tempting to think of credit card debt as exclusively your problem. After all, you made the charges, so you’ll have to face the consequences, right?
Yes, but those consequences could affect your family later on because carrying credit card debt negatively affects your credit score. A low credit score will make it tough for you to get other loans in the future, which could put a burden on your spouse and children.
For instance, as your family grows, you might want to move to a bigger home. But getting a mortgage will be difficult without good credit. So if you’re carrying a balance, now is the time to pay it off.
3. Credit cards could get you or your kids out of a jam
All dads want their kids to be safe and happy. When misfortune strikes, a credit card might be a good way to solve the problem.
You’ll have to check with your issuer to see which of the following benefits are available to you, but it’s common for credit cards to offer:
- Price protection
- Extended warranty
- Rental car insurance
- Access to travel hotlines (these could come in handy if you’re traveling and need to book an emergency flight home)
- Fraud protection
A few weeks ago, my dad saved the day when he pointed out that my credit card company might be able to provide extended warranty coverage on my broken TV. His advice saved me more than $1,000!
4. A credit card isn’t a substitute for an emergency fund
Some dads think that a credit card counts as an emergency fund, so they don’t bother to build any cash reserves. But this is a dangerous move: What if your credit card company reduces your limit or cancels your card?
If a serious situation arises, you’ll want to have easy, reliable access to funds. This is why setting aside emergency savings is essential.
5. Cosigning a credit card for your child is risky
Many dads want to help their kids begin building credit right away, so they agree to cosign a credit card. But you should know that this is a risky idea – if your son or daughter maxes out the card and doesn’t pay, you’ll be expected to foot the bill. If you don’t, your credit will take a hit.
A less dangerous option to consider is making your child an authorized user on your card. You’ll still be responsible for your child’s charges, but you’ll also have more control over the account.
And remember, you don’t have to help your child get started with credit by sharing yours. There’s nothing wrong with expecting your child to handle this task on her own – with your guidance and advice, of course.
The takeaway: Dads already have enough to worry about – credit cards shouldn’t be one more concern. If you keep the information above in mind, you’ll be able to get back to tree houses and dance recitals in no time!
Father’s Day image via Shutterstock