“The biggest mistake teens make is the assumption that debt is free,” says Kevin O’Leary, financial expert and star of ABC’s “Shark Tank.”
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“People use credit cards in a way that’s really extraordinary. They assume that it doesn’t cost anything to put anything on credit.”
The truth is, however, most credit cards carry hefty interest rates if you don’t pay off the balance every month. In October, CNBC reported that the average credit card interest rate spiked to 17.01 percent from 16.15 percent a year earlier and 15.22 percent two years ago.
“The fact is, the interest rates on credit cards are astronomical. The returns there are so high, even I can’t make that when I invest,” he says, “which is why I invest in credit card companies.
“Don’t let me make money on you.”
Paying so much interest “is crazy,” says O’Leary.
Instead, “Don’t spend more money than you bring in. Very simple concept,” he says.
And instead of giving a teen a credit card, give them a debit card. “That way, they can buy things with a card — they don’t have to carry cash — but they can constantly check online how much money is left in the bank account. When there’s no money left in the account, they can’t buy anything, and that’s a good thing,” says O’Leary.
“That’s how you start to understand: Don’t spend more than you have.”
A 2017 T. Rowe Price survey found that 44 percent of parents are extremely reluctant to discuss money with their kids. But talking about money and teaching kids the basics should start way before their teen years, O’Leary advises.
“I think kids should be taught at the age of 5 onward where money comes from,” O’Leary says. “We do a very poor job in North America telling kids about finance. We teach them sex education, geography, math, reading, all kinds of learning skills, but we don’t tell them about debt. No wonder they get into trouble as soon as they get a credit card.”
“Debt is a bad thing. Understanding where money comes from is important,” O’Leary says. “Make money a part of the family at the dinner table. Talk about where it comes from, how you make it and how hard it is to have.”
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This is why teens should avoid credit cards, according to Kevin O’Leary | CNBC Make It.
the biggest mistake teens make is the assumption that debt is free people use credit cards in a way that's really extraordinary they assume that doesn't cost anything to put anything on credit the fact is the interest rates and credit cards are astronomical paid twenty one percent interest is crazy don't spend more money then you bring in very simple concept if you do spend more than you bring in it ends up on your credit card and you pay sometimes over twenty percent interest I would never let anybody charge me 20% interest on anything maybe it's not a good idea to give a teen a credit card here's a better idea give them a debit card that way they can buy things with the card they don't have to carry cash but they can constantly check online how much money is left in the bank account when there's no money left in the account they can't buy anything and that's a good thing that's how you start to understand don't spend more than you have