Congratulations – you made it!  You’re no longer in high school and the world now looks at you as an adult.  Being an adult now means that you have more freedom and responsibilities – and I want to focus on two elements of your financial responsibilities –  cash & credit.

Choices
The mere fact that we are blessed with so many choices as consumers has a consequential impact on our finances.  “Name-brand or generic?” -  “Domestic or imported?” - “New or Used?” Just have a discussion with someone who has immigrated to this great country and learn how overwhelming it is for them to adapt to all of the choices      

• If your outflow is the same as your inflow – you’re broke. 
• If your outflow is more than your inflow – you’re still broke, plus you owe someone money.
• If your inflow is more than your outflow, then you’re a happy dude because you got money left over in your pocket.  Simple.

Credit Card, Debit Cards & You
Credit Cards, Charge Cards, Debit Cards, Stored Value Cards, Gift Cards – who cares?

You should!

Credit Card:  Usually issued by a financial institution and has a pre-determined credit limit.  In other words, this is a loan.  It has an interest rate, conditions for repayment, associated fees and consequences if you don’t pay it back.  Applicants must qualify according to the credit standards of the issuing bank.  Examples: VISA, MasterCard, Discover, American Express.

Charge Cards:  This too is a loan but is often associated with a specific merchant. It has all of the elements of a credit card, except that it can only be used to purchase items from the specific merchant.  Often times, the interest rate is higher and the loan terms more liberal to compensate for the lower credit standards used to approve the application.  After all, the merchant wants to encourage you to purchase his merchandise.  Examples: Gap, Sears, Exxon, Abercrombie & Fitch, Macy’s, Home Depot, etc.

Debit Cards:  Sometimes called the electronic checkbook.  This type of card looks like a credit card (it has the VISA or MasterCard logo and is accepted at any merchants that accept VISA and MasterCard).  The difference here is that this card is not a loan.  When the merchant swipes the card, the amount is automatically deducted from your checking account – the same as it would if you wrote a check.  Therefore, make sure you always record your debit card purchases in your check register!

Stored Value Card:  Very common on college campuses and many city transit systems.  You simply take cash and “store” it on an electronic card that can be used at all campus-specific outlets or the particular transit system.  Users swipe the card in the turnstile and the amount is deducted from the balance stored on the card until the balance becomes zero.  At that time, you can dispose of the card or replace a new amount on the card.

Gift Cards:  This card uses the process of a stored value card by placing and holding an amount and with each use, the purchase is deducted from the balance.  The card also places the VISA or MasterCard logo on the front of the card allowing it to be used at any merchant that accepts VISA and MasterCard.  Some gift cards now insist on placing the label “Debit Card” on the front of the card and explain the reasoning that the amount being purchased is “debited” from the balance.

Confused yet?  Are you asking who cares?

You should!

• Gift cards & stored value cards are just like having money hanging around.  You forget that you have them and therefore that “cash” is just sitting there doing nothing.  Plus, many gift cards assess monthly fees if you don’t use after a while which means that eventually it will be drawn down to zero and you haven’t purchase one thing!

• Debit cards, as was mentioned before, are just like writing checks.  If you don’t record these transactions in your check register, you run the risk of over-drawing your checking account which means bounce check and overdraft fees, not to mention the hassle of dealing with the folks you inadvertently wrote bad checks to.

• Charge cards are easy to get and are often tied in to impulsive purchases at the merchant.  The interest rate and associated fees are higher and if you thought about it a moment, these same merchants will accept your credit or debit card.

• Credit cards are a study in contradiction.  They help you build a credit record. They help you purchase things, eliminate the need to carry cash or that bulky checkbook, but because the minimum monthly payment is generally only 4% of the monthly balance, that $500 purchase only requires you to pay $20 per month.  Except that it will take you over two years to pay it back – if you don’t charge another penny during that period.  How realistic is that?

In the end, we’re right back to where we started with  - choices.  Except in this case, it pays to have the knowledge when you’re making that choice.  Know the consequence of your choice and choose accordingly.  Know your flow and keep track of your money.  It’s on you now….