Revenge of the Dollarmite?

Hi Scott
 
I recently found out that the bank signed up my 18-year-old son for an $8,000 credit card. He was so excited to be a grown-up, to have a job making enough to earn spending money, and to cross the line of being an adult by being given a credit card. I don’t for the life of me understand why the banks feel $8,000 is a good starting amount for someone who has never had to prove they can pay it back!
 
Sadly our story ends with me finding out about the credit card via the post when the default notice arrived. In six months my son had spent all the large balance and kept it secret – he is 18 after all – but has no skills to be able to understand the outcome he has created. We are working with him now to resolve his debt, but it’s clear the banks are setting up young adults for failure by allowing this amount of credit.
 
Kate
 
Hi Kate,
 
I agree with you – eight grand is a lot of credit to start him off with.
 
Now I’m showing my age, but back in my day the banks had a student package that came with a credit card with a $500 limit. Then they ramped up the limit from there (kind of like a meth dealer does).
 
The real danger of getting a credit card when you’re a kid (and, post the COVID lockdown, 18 is the new 13) is that they’re effectively teaching him to view his available credit balance as his money. It’s not, of course, but that’s how they can effectively impose a 20% tax on everything he spends, hopefully for the rest of his life.
 
Yet thankfully your son screwed up … and as a result he was booted out of the brainwashing.
 
This is a very good thing, Kate.
 
Please keep the parental helicopter on the helipad and do not bail him out under any circumstances.
 
This is a life-changing, teachable moment.
 
First, explain the seriousness of a default notice: the bank could take legal action against him, and he now has a black mark on his credit file.
 
Second, have him calculate how much the credit card has actually cost him in interest. That’ll make him feel sick. Then jump on ASIC MoneySmart’s website and show him the bank’s plan for that $8,000 credit card. Making the minimum payments would take 61 years to pay off and $44,168 in interest.
 
Finally, when you’ve scared the living bejeezus out of him, have him call the bank and negotiate a payment plan to pay off every last cent of the debt.
 
Play your cards right and this may just be the best financial thing that ever happens to him.

Scott