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How Credit Savvy Are You?

See How You Score on Our Credit Savvy Test!

By Jim Garnett, Institute of Consumer Financial Education (ICFE)

  1. Using credit can create the illusion that you are living within your means even if you are presently spending more than you make. T or F
  2. Late payments are no big deal because the average lender allows two late payments per year before reporting it to the credit bureau. T or F
  3. A debit card deducts the amount of your purchase from your checking account immediately. T or F
  4. You can “opt out” of having a credit report if you prefer not to have one. T or F
  5. A good rule of thumb to follow is “having access to buy means you can afford to buy.” T or F
  6. Your payment history is the greatest determination in figuring your credit score. T or F
  7. Bad credit cannot affect your ability to get a job. T or F
  8. To build good credit, make a small monthly purchase on your credit card and pay the balance off when the statement comes. T or F
  9. Your credit score is lowered each time you check your credit report yourself. T or F
  10. When you use a credit card, you are borrowing money, not spending money. T or F
  11. The rate of interest you pay is determined solely by how much money you make. T or F
  12. “AnnualCreditReport.com” enables you to secure your credit report from each of the three major credit bureaus once per year. T or F
  13. A judgment remains on your credit report for up to 3 years, and then it falls off. T or F
  14. Landlords often check the credit histories of those making application to rent. T or F
  15. If you faithfully pay off your credit card balance every month, the interest rate is not an issue. T or F

Answers:

(1) True. To find out if you are really living within your means, put your credit cards away for 2 months and do not use them. (2) False. Every late payment is reported on your credit history and lowers your credit score significantly. (3) True. You must therefore have enough money in your checking account to cover the expense. (4) False. Beginning at age 18, every use of credit will be reported on your credit report, like it or not. (5) False. We have access to buy much more than we could ever afford. (6) True. Payment history comprises 35% of your credit score. (7) True. Employers will check the credit reports of most potential employees. A bad credit history can result in problem situations that carry over to work. (8) True. Lenders are primarily concerned that you make payments on time. (9) False. It does not hurt your credit score to check your own credit report. (10) True. Using a credit card is a similar transaction to taking out a loan. (11) False. Your rate of interest is basically determined by your credit history, not your income. (12) True. This is the only place to acquire a free credit report annually, no strings attached. (13) False. Judgments remain on your credit report for 10 years, and if re-executed by the lender each cycle, can remain an unlimited time. (14) True. The way you have paid your bills in the past is a predictor of how you will pay your bills in the future. (15) True. If you pay off the statement balance each month, you will not incur finance charges, so it does not matter the rate of interest.

Correct Answers:

14-15 – Good job! You will avoid most credit pitfalls.
11-13 – You will be okay in most credit situations but proceed with caution.
6-10 – You are in great danger of making some big credit mistakes. Visit www.christiancreditcounselors.org to learn how credit works and access our free educational resources.
0-5 – Stick to cash transactions or prepaid cards. For more credit help, contact Christian Credit Counselors at 800-557-1985!

 

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5 Lessons to Raise Money-Genius Kids

5 Lessons to Raise Money-Genius Kids

By: Crown Financial Ministries

Dear Chuck,

I was raised in a home in which my parents talked very little about money, and my husband’s family didn’t say much about it either. For our parents, money was a private matter. I feel like that led to some financial mistakes when I got out on my own, through some trial and error. My husband and I want to do things differently with our children. Where do we begin? And how should we change our instruction as our kids grow up?

Puzzled Parents

 

Dear Parents,

Thanks for the great question, one that all parents should consider. The truth is, most of us will experience financial difficulties and I don’t know of a parent that does not hope our kids can avoid the mistakes we have made. I’ve found that too few of us are open with our children about the kinds of problems families face as well as the kinds of mistakes that can be made. This isn’t about going through your checkbook with a child, but about being willing to discuss the good and the bad. Most of us have learned some lessons the hard way!

The Wall Street Journal reports that Americans are “notoriously weak” when it comes to financial literacy. The Council for Economic Education’s 2016 Survey of the States reports that only 22 states require high schools to offer a personal finance course, and only 17 require students to take it. In my view, so-called “financial literacy” is insufficient knowledge for Christian children. When it comes to their finances, they need biblical principles combined with practical skills. It’s a good idea to ask high school students to look at a rudimentary budget, but if you’ve waited that long to begin teaching them about finances, you’ve waited too long. Parents need to train up a child in the way he or she should go from the early days. Still, you may be surprised to learn that a life lesson we teach toddlers is a money lesson many adults need to review.

LESSON ONE: Toddlers. Learn delayed gratification.

Toddlers (and their older siblings and parents) can learn that you must often wait before getting what you want AND that reward follows work. Requiring your children to pick up their toys before they get a treat is a life skill in the making. As your young children ask for things, talk with them about why the answer is “no”. For example, a young child who wants pizza for dinner can be told that Friday is pizza night, and that’s what you budgeted for. This illustrates the financial construct of planning, waiting, and reward. They certainly understand anticipation, a plan, and the word “no.”

LESSON TWO: Early Elementary years. Learn the key elements of budgeting.

At the heart of every well-rounded budget are 3 goals: saving, giving, and spending. At Crown, we encourage parents to give children an allowance for work around the home. When my children were young, my wife got them three pouches labeled Saving, Giving, Spending to show them how money must be divided up as you earn it. The lifetime discipline of setting aside 10% of all monies earned for the work of the Lord will pay an eternal dividend. And as a child sees their saving grow, they can participate in making plans, another good discipline. While spending may seem like the easy part, even shopping can be taught as a skill as you help your child think about what they really want and are willing to work toward.

LESSON THREE: Middle and High School years. Learn the realities of big purchases.

As your children move toward adulthood, it’s natural that they want more expensive items like cars, entertainment, and trendy clothes. At this age, teaching wise consumer skills can help them achieve what they really want long term. Car purchases are an excellent teaching tool, as the cost of transportation is so much more than the cost of gas. Understanding what to look for in insurance, or how much money they are ultimately spending with a car is important before taking on new challenges. Many people enjoy travel as a family, which can be all the more sweet as you plan a trip with your older children, who can better appreciate the choices you make in hotels, flights, or entertainment as they consider the costs and weigh options. A vacation is a great tool for learning about “opportunity costs,” those things we lose when we gain something else. Having learned how to accept a no, now kids need to know the cost of yes.

LESSON FOUR: College Age. Learn the dangers of debt.

Proverbs 22:7 warns that the borrower is slave to the lender. You can talk about avoiding debt and waiting for reward through your children’s entire lives, but as your teenagers reach adulthood, this is a good time to explain to them why they need to shred all those credit card applications that are targeted for college-aged kids. Especially as your children prepare to leave home, talk about the traps creditors set for them. In today’s economy, no talk about college is complete without a discussion of how to avoid student loan debt. And if you need to set a living example of what it means to live free of credit card debt, contact our partners at Christian Credit Counselors. You may want to include resources like these in your conversations with your children so they are fully equipped to live a financially free life, even if they make mistakes.

LESSON FIVE: Learn to work together teaching your children.

Personal-finance expert and author of Making Your Child a “Money Genius,” Beth Kobliner encourages parents to talk with kids about the big picture principles at stake…but not about every detail. In an interview with the Wall Street Journal she observed, “Children don’t need to know how much you earn or how much is in your 401(k)… And don’t fight about money in front of your kids. My dad always said: “Parents should keep a unified front!” I couldn’t agree more.

 

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3 Most Important Financial Tips for Graduates

 

By Jim Garnett, Institute of Consumer Financial Education (ICFE)

I have been given the honor many times of addressing graduating seniors who soon will exit the sheltered walls of home and school to enter the real world before them. To help prepare them for the myriad of financial situations they will soon encounter, I want to share three simple principles, which if grasped, will make a practical difference in the way these graduates think about money and credit over the next few years.

I call these my “Three Most Important Financial Tips for Graduates.”

1. Accessibility is not affordability.

In the next couple of years, graduating seniors will have access to more credit than they can afford to repay. They desperately need to understand that “just because we have access to buy something, does not mean we can afford to buy it!”

Many people have questioned, “But why would they let me buy that car/house unless they knew I could pay for it?” Most people, as will these graduates, tend to look to the salesperson/lender to advise them what they can afford and reason, “After all, they know more about finances than I do.” High credit scores do not, in themselves, reveal whether people can actually afford to buy what they are looking to buy. Credit scores primarily show that the person pays his/her bills on time. Unfortunately, this is frequently done by using credit to pay on credit.

Graduates need to determine what they can afford to buy before they go shopping, not leave it up to the salesperson to tell them.

2. Wants are not needs.

If we received a surprise gift of $1000, most of us would immediately make a list of the things we need to buy with that gift. Isn’t it interesting that right before we knew about the $1000 gift, those items on our list of needs were just “wants?” The truth of the matter is that once we have the means to buy the thing we want, we tend to see it as a need and no longer as a want.

The best defense I know against seeing wants as needs is a keen appreciation for the things I presently have. Being grateful for what I have keeps me from wanting what I don’t have. It also keeps me from cultivating an entitlement mentality of thinking that I deserve to have more. There is no way to express how important an attitude of gratitude is. It affects every area of our lives every day, including finances.

3. Credit cards are not money.

Credit cards are as convenient as using cash, so it seems like we are spending money when we use them. In reality, we are borrowing money. A credit card transaction is very similar to taking out a loan at a bank, and like a loan, the money we “borrow” must be repaid.

This fact would be much easier for us to realize if we actually went to the bank, filled out a loan application, and used the money to purchase our items. Credit cards eliminate those steps, but nonetheless, leave us owing money and creating debt just like a bank loan would.

This truth will transform the way graduating seniors look at credit cards and realize they are borrowing money instead of spending money.

I hope these three simple truths that I impart into the minds of these young people who are graduating will shape the financial perspectives they have and, consequently, determine the practices they follow on their road to success.

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