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Created on 02.04.2020

Buy today, pay tomorrow

If reviewed carefully, credit purchases can be practical and sensible. However, interest costs and the length of the repayment period are often misjudged. With these tips, parents can prepare their children for handling credit competently in adulthood.

Buy today, pay tomorrow – there are a number of ways of doing this: using your account overdraft, paying by credit card, entering into a hire purchase agreement or taking out a microloan. The disadvantages and risks of credit purchases, such as higher costs due to interest or relatively high additional fixed costs with long-term debt, are often poorly appraised. According to debt advisors, credit purchases are more often than not the trigger for financial problems.

For children and young people, the principle of “buy today, pay tomorrow” may seem particularly attractive. For reasons relating to developmental psychology, they have an even stronger tendency towards impulsive action and seeking immediate fulfilment of their desires. In order to protect children and minors from debt, it is illegal for them to enter into credit agreements without the consent of their parents.

When young people have reached legal age, however, they can obtain a loan without their parents’ signature. Young adults make relatively frequent use of this option. Debt counselling agencies estimate that around 30 percent of all young adults in Switzerland buy on credit: a new mobile phone with a two-year contract, clothes on credit cards, a car with a lease agreement.

Adolescents can forearm themselves against reckless credit purchases if they have practical knowledge of the risks and drawbacks, a realistic idea of the cost of living and, in particular, the fundamental attitude of “buy only what you’ve saved for”. As parents, you can promote this attitude by setting an example when it comes to saving. Demonstrate that something can only be bought if you have the money for it. Also make use of alternatives to buying on credit, such as buying second-hand, renting or sharing.

That being said, credit cards are the standard payment method in some areas, which means they are also indispensable for young people. Because children are not allowed to have their own credit card under the age of 18, the prepaid card offers a sensible alternative. It is available from the age of 12 with a parent’s signature, and its sole difference from a conventional credit card is that you can spend only the amount you have previously loaded on to it. In this way, young people are shielded from overdrafts, but are still required to use the card wisely. After all, even preset amounts of money can be spent quickly. However, anyone who learns how to use a prepaid card responsibly can do the same with a real credit card later on.

Tips for parents

Here’s how parents can prepare children and young people for handling credit:

  • Set an example for the principle “only buy what you've saved up for”: use alternatives to credit purchases and borrow money or ask for cash advances only in exceptional circumstances.
  • Increase knowledge around credit: saving money or paying off debt – both take time, but with credit you also pay the interest. It’s also important to check the interest terms carefully.
  • Promote a realistic perception of costs: give children responsibility for their own pocket money.
  • Let them practise credit card use with a prepaid card.
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