Parents and Personal Finances: Effective Ways to School Your Teen on Credit
There obviously comes a point when parents have to cut the financial umbilical cord and let their kids stand on their own two feet, but you don’t really want to do that until you are reasonably confident in their ability to handle their own money and cope with credit.
Here is a look at how to get your teen financially ready and help them avoid the sort of money mistakes that can mess up their credit score before they really get started in adulthood. There is an overview of how to use debit and credit cards plus some strategies for guiding them towards good financial responsibility and competence.
It’s down to you
Schools only seem to give kids a very basic financial education so it is up to you as their parents to fill in what could be some very substantial gaps in what they need to know to handle money successfully.
There are many new adventures awaiting teenagers as they make that transition from childhood to an adult world, and one of those experiences is being given access to their first debit and credit cards.
There is no question that having their own card is a great way to teach them how to budget and control their spending, but you can’t always expect them to fully understand all the various workings of debit and credit card spending and the costs attached to using them.
Make sure your child knows how to budget and how to use a credit card sensibly.
Spending limits
You don’t want your teen to run into trouble at some point and require credit card debt assistance, and to help ensure that this doesn’t happen to them, it would be wise to talk to them about spending on credit so that they appreciate how to use cards sensibly.
Make sure they know when to use their debit card and the implications of charging something to their credit card.
Credit cards can be a useful way of keeping track of your expenses and if you pay off the balance when the statement comes in, there is nothing wrong with using a line of credit in this way.
The problem comes when you can’t make a full payment and end up paying a lesser amount or even the suggested minimum balance. Explain to your teen that every $100 they leave outstanding on their credit card is going to be costing them and making the minimum payment each month is going to become very expensive.
Start with a debit card
A good strategy to get them started would be to suggest that they use a debit card so that they can hone their money management skills and get used to working with a set amount in their account each month.
This will encourage them to budget and appreciate that there is always going to be a need to have self-imposed limits on their spending, which is not so easy to encourage when they have access to a credit card.
If you trust your teen to be financially responsible you could consider making them an authorized user of your own credit card. This gives you the chance to monitor their spending and make them accountable for their spending.
If you can give them the right financial guidance in these vital early years of adulthood it should see them develop a healthy respect for money and become much more financially competent and confident.
Anthony Farmer is a Dad and an educator who is passionate about raising the next generation right, teaching them real-life skills early on and preparing them for adulthood.
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