Vital Information for your Teenager about Credit
It can easily be considered one of the biggest failures of the last two decades: the complete and utter lack of financial savvy that today’s teenagers and young adults have when they enter the real world for the first time. University campuses from coast to coast have sold out their student body to credit card companies by allowing representatives to literally line the pathways and gathering places of students with tables and booths offering the latest cards. These young adults are blindsided by the allure and freedom that is marketed to them by the banks, and since they were never given a financial groundwork to start from, they soon find themselves deep in debt with no way out. Of all of the services a parent can provide for their teenager, sitting them down and explaining how credit cards, student loans and your credit rating work is absolutely vital. Any parent who skips this because they don’t really understand it themselves is doing a huge disservice to their children.
While it is extremely important to not fear monger credit cards to the point where your child is terrified to even apply for one, you need to make sure they understand both the benefits and the dangers of having a credit card. Explain to your kids how having a credit card is absolutely vital for things like renting a car (which, in most states, they can’t even do until they are 25 without racking up huge fees, but still), shopping online and even buying an airline ticket in some cases. You don’t want your child to despise credit cards, you simply want them to know how to use them to their advantage.
A great way to start learning about credit cards is with the credit card’s little brother, the debit card. Since the debit card works in many ways just like a credit card and is accepted at the same locations, it can be a great tool to teach your teen how to use a card and when the right time to use it is. Debit cards now come automatically with almost all checking and savings accounts, so, assuming you co-sign, getting one shouldn’t be a problem. Be prepared, however, for things like overdrafts. Most adults have written a bad check or two sometime in their life, it is silly to think that your child won’t make a few mistakes along the way.
If you don’t think you can trust your teen with a card that is attached to an account that controls their college fund or the same account that you pay your mortgage out of, there are alternate solutions. A pre-paid credit card has become an option that many parents have flocked to as a way to teach kids how credit cards work. Most banks offer a pre-paid amount put on a credit card for kids to use. It not only teaches them how to keep their card safe and how to be responsible with it, but it can also teach them to budget properly and make important spending choices, as well as setting priorities. The real challenge, however, begins when you are ready to take the training wheels off and give your child a real credit card.
Teaching your kids about credit and the impact it can have on their lives is one of the most important lessons a parent can give. Take the time to do it right and your kids will thank you.
When you first have kids, the number of important lessons they need to learn seems overwhelming. One lesson that, for one reason or another, seems to go unlearned is how to manage your money, or, more importantly, how to handle credit cards and your credit score properly. Whether parents think the kids learn it in economics class in high school or the schools think mom and dad are teaching them, the end result is that our kids are leaving high school as easy prey for the credit card companies. We talked in the last article about not fear-mongering credit cards, but simply educating kids on the plusses and minuses of using credit cards.
One of the latest fads for educating kids about credit is the pre-paid cards that are aimed specifically at kids. While these can be a valuable tool for kids to learn about cards, they also teach another valuable lesson: the fee. As anyone who owns a credit card can tell you, the fee is one of the most devious parts of a credit card. Depending on what your credit is like, you can have several fees that rack up hundreds of dollars every year or maybe you are one of the few that only has to pay minimal fees. Either way, if you choose to get a pre-paid credit card for your child, they will learn all about fees very quickly since many pre-paid cards come loaded with them. So, if you choose to not go the pre paid card route, what are your choices?
Well, if they are old enough, how about the real thing? Most parents and financial folks out there believe that a teen should get a taste of a full-fledged credit card before they leave home so they can ask questions and solve any financial problems before they leave home. Getting a joint credit card shouldn’t be a problem. Most credit card companies are happy to have future customers who aren’t going to default on their purchases in a few years. With a joint card, however, be aware that your child now has full spending rights on that particular account. Here is what you should be teaching them once they get their card.
Pay off your entire balance every single month – This of course, falls under the banner of easier said than done. No one sets out to carry a balance on their card, they just have different spending priorities and prevent them from paying off their card every month. Show your teen how interest, fees and other costs add up on top of your principal and how easy it is to get buried up to your neck in credit card debt.
The hardest part for most parents is to hold off on saving your child from early credit mistakes. It can be extremely tempting to simply tell your teen, ok, that was a mistake, but I’ll take care of it. If you really want your teen to learn about the ramifications of mis-using a credit card, make them pay off their balances, no matter what. A good scare now can be worth a lot when it comes to the future.
Teaching our teens about credit is not only a lesson that could save them serious bucks in the future, but it is a public service to everyone else who has a credit card and who sits there helplessly and watches their rates being jacked up because someone else declared bankruptcy. Teach your teens now or you may live to regret it.