Many millennials don't understand how credit cards work

Little plastic grenades

Years ago, I was talking money with a smart young colleague when he mentioned his three accounts.

“I’ve got my checking account, my savings account, and my credit card account,” he said.

According to my friend, that Visa “account” was no different from the money he kept at the bank—just one more source of cash. Seriously? I broke the news to him: Using a credit card is just like taking out a loan.

I don’t mean to pick on millennials, whose financial literacy isn’t getting much of a boost from our educational system. But as I talk to young people today, I continue to be worried by how poorly many people understand credit cards. First, you’ve got to know the card’s interest rate. That’s what you’ll be dealing with if you don’t pay your bill in full and on time each month. And those on-time payments lead to a healthy credit score. But it all comes down to the most basic idea of all: You’re taking out a little loan each time you use that card, so use it wisely.

Having at least one credit card is often a necessity, of course, whether you’re renting a car or buying a mattress. I get it. But credit cards are not cash. They deserve the same level of care and responsibility as a car loan or a mortgage.

I’ll leave you with some great advice Senator Elizabeth Warren once shared with me.

“I don’t like credit cards. They make overspending very easy. They can make life a lot more complex and stressful,” said Warren, who, thank goodness, spearheaded the creation of the Consumer Financial Protection Bureau. “My advice is to treat them like what they are: little plastic grenades that must be handled very carefully.

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