Teaching Teens About Money & Credit

A major issue teens have to deal with once they go to college is a lack of
financial smarts. They find themselves away at school with a credit card and a
new checking account with no knowledge of how to responsibly use either one.

Unfortunately, it is very common for parents to
assume that their children know how to manage money and deal with finances just
because they are smart academically. Parents need to educate their children
about money management and fiscal responsibility. Featured are some insightful
ideas that will help accomplish this.

Credit Cards


Prior to giving your child their first credit card, not only do you need to
teach them proper credit card use, strict guidelines and rules for them to
follow must be established.
The most important message to convey is that the
credit card will be taken away the instant it is abused. Another important
'rule' to consider is that the card be used for emergency purposes only. It is
important to note that teens and adults have vastly varying versions of what is
classifiable as an emergency. Therefore, introducing your child to a secured
credit card first may be a good idea. The advantage of this type of credit card
is that it is not a revolving line of credit. The only money that can be spent
is the money that has been placed in the account. A secured card will remove the
chances of your child falling into debt as a result of spending money that they
do not have.

If you choose to grant your child regular use of
a credit card, you need to educate them about balances. Let them know the
importance of paying the debt on time, in full every month. The
consequences and impact of not paying credit card bills should also be
explained. Specifically the cost of interest as well as the damage that can
occur to their credit as a result of irresponsible bill management.

When used wisely, a credit card is an excellent
means of establishing credit. On the contrary, a credit card is also very easy
to misuse. Credit card debt will hurt your child's credit; putting them in a
financial rut that will cost them a great deal of money, taking them years to
get out of.

Checking Accounts


A checking account is another means for teaching children about fiscal
responsibility. However, do not enroll them in overdraft protection. Even though
this may seem mean, there are many valuable lessons that can be learned as a
result of bouncing checks.

Bailing Your Child Out of Trouble


It is very likely that child is going to develop debt no matter how
intensely you attempt to educate them to be financially responsible. Should you
look to assist your kid in the event that they get into a financial rut that is
too hard for them too handle? You will need to proceed at your own
discretion. It is very likely that your child will learn a significant lesson by
having to deal with their own debt. However, even if your child does regain
control by developing a budget and payment plan for eliminating their debt, the
damage may be already done and beyond repair. Therefore, you may have to step in
before their situation gets to that point. Regardless of what your final choice
is, your child should gain some sort of learning experience from the incident.

*** Once your child starts utilizing credit, it
is important that they get a copy of their credit report at least once a year.
Learn more about
credit reports.