The Action Wealth Guide to Financial Literacy for Teens and Their Parents by Semaganda Geoffrey

Author:Semaganda, Geoffrey [Semaganda, Geoffrey]
Language: eng
Format: epub
Publisher: UNKNOWN
Published: 2016-09-16T16:00:00+00:00

CREDIT CARDS

I was told that back in the 1980s, a funny joke was going around. In fact, it appeared on T shirts and bumper stickers. It said something to this effect:

“ I borrowed from my Visa to pay my MasterCard .”

At the time, this was a very funny joke. Today, no one thinks it’s so funny, because it’s an everyday occurrence. People bounce credit card balances around from one account to another in an attempt to save on the fees and interest. It never solves the problems, but like the payday loans discussed in the previous chapter, it becomes a trap which is difficult to get free from.

Teenagers in today’s world cannot imagine life without credit cards. So how did all this plastic stuff begin in the first place? It happened in 1949 when a businessman in New York City went to pay his bill at a restaurant and discovered he didn’t have his wallet.

His name was Frank McNamara, and he’d just eaten dinner at New York s Major s Cabin Grill. The bill was brought to the table, and it was at that moment McNamara realized he’d left his wallet at home. While he was able to get out of his current predicament, he began to think there had to be a better way. How could a person pay for something with no cash?

He and his business partner, Ralph Schneider, put their heads together and came up with an idea. The following year, the two men returned to the Major s Cabin Grill and paid the bill with a small, cardboard card. They called it the Diners Club Card. At the outset the card was used for travel and entertainment purposes. These early cards were not called credit cards, but rather were called charge cards. The holders of these cards paid the bill at the end of the month. It would never have occurred to them to let the bill run up month after month.

The idea took off and by 1951, cardholders numbered around 20,000. The cards remained in their cardboard state until ten years later when plastic cards were introduced. And it was in the 1960s that MasterCard and Visa came into being. Now the banks became involved. Instead of paying balances off at the end of each month, these newer credit cards allowed the holders to pay minimum payments on the balance and carry over the difference to the next month.

Advertising was then ramped up making the possession of a credit card appear to be the in thing to do. Eventually, people were making ordinary everyday purchases such as clothing, petrol for the car, and groceries, and were putting them on their credit cards. It was all so easy.

One of the most glaring problems of a credit card is that the holder loses sight of actual numbers. Remember when we talked about how a budget allows you to have a picture of where you stand with regard to expenses? The credit card does a good job of hiding actual expenses.

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