As with most things financial, the earlier a person gets started the easier they will have it. So if a teen starts investing when they have a taxable income, they will be further ahead when it comes time to retire. If they start using credit as soon as they are legally able to do so, they will have an easier time when it comes to getting larger loans for cars and houses. The credit card world can be confusing for those who are not familiar with it, and too often what happens is that after a teen turns 18 they rack up a bunch of debt. This is why it is important to start teaching teens about credit long before age 18.
Teaching about Credit Cards to Younger Teens
The early teen years is the time to start talking with your child about money, saving, debt, and credit. When they can grasp the topic, then you can start giving them more responsibility. Since they cannot handle a credit card, it is time to get started with a debit card.
Open a bank account with them. Into this account, you can put allowance, payment for chores, and any other money that they earn from doing odd jobs around the neighborhood. Attached to this account they will have a debit card. Every week you sit down with them and review how they have been using their card, and what their account balance looks like. If they cannot handle the easy access to their money, switching to a pre-paid debit card that you can reload each month will give even more structure.
Coaching about Credit Cards to Older Teens
As the teen approaches age 18, you can consider adding them as a user on your credit card. This does carry some risks, though. You will be responsible for all purchases and debts. So if your child goes crazy with the spending, you can’t get out of it. Most credit cards won’t let you set different limits for each user, so if you have a $10,000 credit limit, so does your child.
When your child turns 18, he or she should apply for a credit card right away. The sooner they can get a card, the sooner they can start building credit. But without an income history, and no credit history, they may have trouble getting one. This is where a secured card comes into play. By backing up the purchases with a small account, the card company negates their risk.
For teens that have been working for a number of years, they may be able to get a card that is not secured. Before signing up it’s a good idea to get one that will be the most beneficial.
The most important thing to teach your teen when he or she gets their first credit card is that this is not free money. While they are technically in charge, you are still the parent and you can reserve the right to cancel the card or take it away.
Wrapping it Up
Talking to your teens about money generally isn’t quite enough. You have to make sure they have hands-on experience, especially to learn about how credit and debit cards work. With a little planning, you can make sure they are set up with a credit card. One that isn’t going to get them into too much trouble, like a secured credit card. Then you can move on to a card that offers better cash back deals. The most important thing is to monitor their spending, and help keep them on track.
