Question: Karen on Twitter asks what Dave would recommend to help her 18-year-old build credit. Dave's suggestion is to not teach her 18-year-old to build credit.
Answer: Karen, you're not going to like my suggestion nor are you going to understand it, but I'll try to help you with it. My suggestion is that you don't teach your 18-year-old to build credit.
The concept of building credit is simple. It is borrowing money to prove my reputation so that later I can borrow more money. Does this not sound like a dog chasing its tail to you? It does to me.
The question you ask presupposes that the best way for your 18-year-old to have a good life is for him to be in debt. I disagree. I think the best way for your 18-year-old to have a good life is to stay away from debt. As a matter of fact, I'm positive the best way for your 18-year-old to build wealth is to stay out of debt, because your most powerful wealth-building tool is your income.
People who teach their 18-year-olds to build credit—to go get a credit card so they can get a car loan so they can get a house loan later—get one so you can get one so you can get one—when you teach people to do that, what they end up with is the normal American situation, where they're 32 years old with two kids, the student loan is $30,000 and has been around so long they think it's a freaking pet because you can't be a student without a student loan. You've got to build your credit. Of course you have a car payment. The average car payment in America is $486 over 84 months. You've got to have one of those. That's part of the rules. And of course you've run up your credit cards because you were using your credit cards to build your credit. You promised yourself you were going to pay them off every month, but you didn't. A hundred million people do not pay their balances off every month. So all of you people who say, "Pay off your balance every month," that's a bunch of crap. It just doesn't happen. It doesn't work, folks. It just doesn't work. It's that simple.
The deal is that if you take that average car payment for little Billy who's 18 years old and say you're never going to put him there, and he starts saving and investing the car payment because he stays out of the land of car payments for the rest of his life, then what you've got is he could invest that from age 20 to age 60 and he'll have $5–-6 million. That's what the average car payment costs you. Had you saved and invested the average car payment, you're going to have $5–6 million. So I don't want Billy to build credit. I don't want him to be normal and average and typical with a great credit score and no freaking money because all of his money's going to the bank.
What I would tell you with your 18-year-old is beg them not to build credit. "Well, they can't rent an apartment without credit." Horse crap! Of course they can rent an apartment without credit. They may not be able to rent some apartments without credit, but so what? You can certainly find a rental property that you can rent without credit. There are plenty of them, especially if you're 18-freaking-years-old. People don't expect you to have a credit report as long as your arm. "Well, they can't buy a car without credit." You're right. He can't buy one on payments without credit, but he can save up what most people pay as payments and in a few months have the money to pay cash for a car. Think about it. For 10 months, you put $484 in a cookie jar, what would you have? Four thousand eight hundred dollars. You'd have $5,000 in just 10 months. Save up and pay for the car instead of going into the normal car payment crap that's out there.
That's what you've got to do. You don't build your credit. That's the answer for your 18-year-old. Tell them not to build their credit. Tell them not to be normal in America and instead to become wealthy, because that's the best way to take care of yourself, your kids, change your future. That's the best way to do it. It's absolutely the best way to do it, and it's the best way you can help other people is to stay out of debt so you actually have money instead of giving it all to the bank every month.