Teach Kids about Credit
It's just as important to teach kids about credit as it is to teach them how to drive to avoid high risk situations. One day they will be offered a line of credit; such as an unsecured credit card, and surely you want them to use it responsibly to avoid bad credit ratings.
If a teenager cannot control spending to save money, how well do you think he/she will use a credit card responsibly? And what about peer pressure? When all his/her friends are living large, having parties, buying new clothes and so forth, how well will your child avoid temptation to run up high credit card debt? Not only will there be a huge balance, but let's not forget about interest charges.
If that happens, the best advice is to make your child work it off. Otherwise; if your bailout the child, he/she will have no qualms about doing it again... and again. Making a child payoff credit card debt on his/her own is a powerful lesson.
But why wait for disaster? Take preventive action by teaching your child credit responsibility. The best time to start is when the child is young. If they have a grasp of fiscal responsibility going out the door, the chances are less that they'll go nuts when they get their first credit card.
A main point is to teach kids to resist peer pressure. College students often abuse their credit cards while trying to impress friends. Explain how easy it is to get into debt and the consequences of not repaying charges before interest accrues. At the average credit card rate of 18 percent, for instance, a student making only the typical minimum required payment would spend eight years repaying a $1,000 debt, and would pay an additional $1,000 in interest. Your child should have a repayment plan for anything he charges. Make sure your child understands how credit report bureaus compile records that affect their lives. Missed payments can restrict his/her ability to rent an apartment, obtain a home mortgage, or even qualify for certain jobs or even a promotion. Emphasize the importance of never lending a card to others, never charging purchases for friends, never leaving it where others could find it, and revealing the number only when making purchases from reputable organizations.
A debit card tied to a bank account can help a child learn to use a credit card wisely. The child uses it like a credit card and must keep track of his purchases, and can't spend more than the amount deposited. A child also can practice using credit by borrowing from a parent. If you do that, treat it like a commercial loan with a signed agreement that includes a payoff schedule and interest.
Knowing your child is likely to receive credit card solicitations when he turns 18, you can offer to help him choose the best. Compare annual fees and interest rates, and request the minimum credit limit that you think he/she needs and can manage.
More tips and advice for teens.
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