5 credit lessons every parent should teach their daughters

By Sheryl Nance-Nash

When it comes to teaching children about money, the most effective lessons begin at home. And home schooling about credit is especially important for daughters.

That's because among people with low levels of financial literacy, women are more likely than men to engage in costly credit card behaviors such as carrying a balance and incurring late fees, according to an April 2012 study by FINRA Investor Education Foundation. On the flip side, the study also found that among financially literate women and men, the gender gap disappears. Education makes the crucial difference in improving the financial lot of females. 

Linda Diaz, a deepwater land assistant for Chevron in Houston, couldn't agree more. She racked up $22,000 of debt over eight years and is still paying for it years later. "Emotional purchases, my lack of financial discipline and failure to adjust spending after divorce did me in," says Diaz, who is in the final months of a five-year debt consolidation program.

She has played tough mom to educate her two daughters about credit cards. "During their high school years, credit card offers came in their names," she recalls. "Being deprived much of their lives and being under peer pressure to fit in, they were looking at what they could buy now -- the latest clothes and shoes. I had the unpleasant task of bringing them down to earth, pointing out the implications of high interest rates when you carry a big balance and only pay the minimum," says Diaz. "I used my circumstances as an example."

Those kinds of chats are must-have conversations with your children, but especially your daughters. Even if you've never had credit problems, your insights are important for your daughters to hear. Here are five lessons to teach your daughters before they leave home.

1. Establish credit early.
It's a fact of life these days that most people need access to credit if they want to enter the financial mainstream. A good credit score makes it possible to take out a loan for a car, home, education or a small business. Fifteen percent of a credit score is determined by the length of your credit history. 

Research suggests that the earlier kids get real-world experience managing money, the better, says Karen Carlson, director of education and creative programs at InCharge Education Foundation. "You don't want your child's first experiences with credit in their 20s with no prior guidance from mom and dad."

Don't be fearful of letting your teenage daughter have plastic -- with parental supervision. By letting your child become an authorized user on your credit card, you can guide her spending and slam on the brakes if it gets out of control.

Stress that it's equally important to maintain a good credit record throughout adulthood -- a task that can be difficult for full-time homemakers at the moment. Married women who don't work outside the home are having a tough time getting a credit card because of a 2011 federal rule limiting credit cards to anyone without independent income. The Consumer Financial Protection Bureau has nearly finalized a rule change benefitting stay-at-home parents. That rule allows accessible income from a third party, including a spouse or partner, to be taken into consideration by lenders. That would allow those not working outside the home to qualify for credit and build their own credit histories. 

2. Figure out why you're buying.
Teach your daughter the difference between a need and a want. "The vast majority of people who find themselves overwhelmed with debt got there one irrationalized purchase at a time," says Kimberly Foss, founder of Empyrion Wealth Management. "A need is $35 for a tank of gas to get to work, a want is $125 python-printed pajamas." 

For many women, shopping has less to do with the actual items purchased than the act of shopping itself. A 2009 study, "Sheconomics," by professor Karen Pine at the University of Hertfordshire in the United Kingdom, revealed just how much women's emotions can be tied to money. Nearly 80 percent of women polled said they went on a spending spree to cheer themselves up. Sixty percent confessed to buying goods on impulse, and one-third had spent more than they could afford in the past week.

The study concludes, "Women are more prone to money pathologies than men, and shopping appears to have become an emotional habit for many of them." It advises women to be aware of how their emotions affect their financial behaviors and to make tangible savings goals to help drive better actions.

Foss also suggests teaching your daughter to ignore impulses. "Have her delay purchases for seven days so she understands the rationale behind each purchase," she says. "Impulse buying leads to racking up credit card debt." 

3. Impose your own credit limits.
Tell your daughter, too, there's no need for a wallet full of cards with lofty credit limits. Just because a lender is offering a new card doesn't mean you should take it. Too many cards are hard to keep track of, both in terms of spending and in terms of their physical locations. More importantly, some people can't resist the temptation to spend when they still have available credit.

"Credit is not a birthright, it is a convenience," says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling. "It's easier to build credit than to rebuild credit. Be smart."

4. Pay off balances monthly.
Get it in your daughter's head to not carry balances.

At a recent focus group, female college seniors in their 20s were asked if they had difficulty staying within their financial budgets.

"They all laughed and enthusiastically said 'yes,'" says Joyce Serido, an assistant research professor at the University of Arizona. One talked about a shopping addiction, saying that, for instance, she uses a credit card that she's not supposed to use to buy clothes, thinking that by the time the bill goes to her parents, she'll be able to pay.

"Some of the women have secret credit cards that are maxed out," says Serido. "Yet, one woman is hoping that her parents will eventually pay it off as a graduation gift."

Ginita Wall, co-author of "It's More Than Money -- It's Your Life! The New Money Club for Women" advises, "Don't put anything on a credit card until you have figured out how and when you will pay the money back. It isn't free money."

However, that doesn't mean that credit cards are evil. Let your daughter know they can work for her. "If you use a credit card to accumulate points for travel or merchandise, it's most rewarding if you pay your balance in full each month," says Mary Quist-Newins, director of the State Farm Center for Women and Financial Services at The American College.

5. Stay honest and independent.
Guilt and shame can lead women to keep financial secrets from their spouses or partners. "I see some women take on credit card debt because they don't want their husbands to know about certain purchases," says Leslie Tayne, an attorney specializing in debt issues. "Many also don't feel they are getting enough money from their husbands and resort to buying what they can't buy in cash with credit instead."

Honesty about financial matters is the key to intimacy in relationships. Much of the guilt and shame can be eliminated when women take control of their earning and spending. "Be financially independent," advises Tayne. "Don't rely on anyone to give you money or take care of your finances."

See related: Financial literacy online resources for parents, children, Study: Women get stuck with higher credit card interest rates, 7 ways the sexes handle credit differently

Published: January 23, 2013

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