Credit cards are the norm in many developed countries and continue to gain popularity throughout the world. They offer a higher purchasing power and often come with fantastic rebates and perks to lure customers. However, the dark side of credit cards is also well known. The power of compound interest, the illusion of wealth, often leads many to fall victims to their credit card debts.
In most countries, the government will not allow those who are deemed too young to hold a credit card. Yet, despite such precautions, many young people rush forward to get their first credit cards the moment they are legally allowed to do so. These are typically people who have just completed their studies and are venturing into the working world for the very first time.
It is interesting to note here that the victims of credit card debt are often not what you expect. Even the most respected and otherwise cautious members of society can be ensnared. This is because the human mind often underestimates the power of compound interest and the lure of “cashless” purchases can be hard to overcome. Also, the credit card systems themselves are designed by ingenious mathematicians and financial experts.
When we take all that into consideration, then it seems ridiculous that young people should have any credit cards at all! Indeed, this is precisely the position advocated by many financial planning gurus. After all, this is precisely the time in their life where they suddenly have a lot of purchasing power for the very first time. In stark contrast, the young’s actual financial reserves are often woefully inadequate to weather any unforeseen circumstances. This, together with a culture of spending beyond one’s means, is a perfect recipe for financial disaster. In that sense, a credit card in the hands of a young person can be likened to a financial time bomb.
Still, the benefits of credit cards should not be completely overlooked. While not every young person is disciplined enough for a credit card, there are a minority who can use it to its maximum potential. How many credit cards should each individual have then? This is a highly situational question and only the individual will know his or her own level of financial discipline. It is best to err on the side of caution if one is uncertain. In any case, having more than three credit cards is usually neither necessary nor desirable.
With such a limited number of credit cards, the question then arises. Which credit cards should the young man or woman pick? It depends on the individual’s needs, but a few generalizations can be made. Foremost, a potential credit card’s perks and especially rebates should be weighed. Rebates, especially when they are on basic necessities such as groceries and utilities, can save a surprising amount of money. Next, we should consider the credit card’s interest rates and how transparent the payment and penalty process is. One should avoid having *any* credit card that has a very confusing system of payment and penalty or one that seem to have inexplicable hidden charges.
As we can see, credit cards offer plenty of benefits that can easily justify the risks associated with them. It is up to the individual young man or woman to determine exactly how many credit cards he or she can handle. Just as importantly, the choice of credit cards themselves must be carefully considered. For those young people who know that they lack the financial experience to not abuse their credit cards, then perhaps a simple debit card may be the better option after all.