Establishing Credit For Your Kids
In yesterday’s blog, Financing A Property For Your College Kid, I mentioned that parents cannot buy a property for their college kids with “owner-occupied” financing unless their kids are on the loan too. But, the kids need to have established credit if they’re going to be on the loan.
So, that is just one excellent reason to establish credit for your kids when they are in or right out of high school.
Here are some additional reasons to establish credit for your kids:
- They can get better car insurance rates.
- It will be easier for them to rent apartments.
- They can get far better auto loan and credit card rates.
The other reason parents should establish credit is that it is super easy, and it costs nothing.
How To Establish Credit For Your Kids
Here are several ways to establish credit for your kids:
- Authorized User. Add your kids to your credit cards as authorized users.
- Student Loans. Have your kids get low-rate student loans in their name and start paying them off sooner than necessary.
- Credit Builder Loans. Many banks offer small credit builder loans that kids can get solely to establish credit.
- Secured Cards. With a $500 deposit, many banks will offer “secured credit cards” to most anyone with a limit to match the deposit.
- Student Credit Cards. Many credit card companies offer promotional credit cards to students to ensure they get addicted to credit at a young age.
Beware: Credit Limit To Six-Pack Ratio
When I went to college, you could buy a six-pack of cheap beer for $2. And fortunately, I paid for 100% of my college costs; if somebody, however, had given me a credit card with a $500 limit, I think the first thing I would have done is figure out that I could have bought 250 six-packs with that credit card – and I would have bought all 250 of them in short order. I, in fact, watched several irresponsible kids do just that after their parents were dumb enough to give them credit cards.
So, parents do need to ensure their kids are responsible enough to handle credit. Heejin and I built credit for our kids, and they were very responsible fortunately; they had credit scores in the 800s before they left college and still do to this day.
Inflation Comes In Hotter Than Expected And Bond Market Barely Reacts
“I just spent $22 for a meal at Five Guys. I am now broke and need stimulus checks.”
That was a post on X this morning that made me laugh, as it sums up the state of our economy perfectly; inflation came in hotter than expected in what is clearly a soft economy – and everyone seems to be waiting for help from either the government or the Fed.
The money supply guys (Steve Hanke) say we have not seen the full effects yet of 2023’s record money supply contraction (so prices will still fall – especially when the recession hits as a result of the contraction). Jeff Snider will say that we still have not seen the full effects of supply chains finally opening up; that prices will fall when unemployment rises after the recession hits; and that a Eurodollar crisis is brewing that will both dampen the economy and bring prices down. Luke Gromen, Joseph Wang, and Jim Bianco think the economy will hang on and inflation will persist because of all the liquidity in the system (cash on sidelines), because of massive deficit spending and because of the Fed’s desire to prop up the economy.
The bond market barely reacted to the hot inflation numbers though, so it appears that most investors are in the Hanke/Snider camp: recession is still in the works and prices will still fall.
