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Introduce the Concept of Credit to Your Kids

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There is a window of opportunity to teach your children about using credit responsibly before they leave the house. It's likely they will be exposed to credit cards in college or after they move away from home; explore credit cards for kids and introduce the concept of credit with your supervision earlier and you will empower them to make the right choices once they are on their own.

Difficulty: Average
Time Required: Indefinite

Here's How:

  1. Establish Bank Accounts:

    Before introducing credit cards, be sure that your teen understands basic banking concepts and how to manage their money with savings and checking accounts. Credit cards will be a secondary tool to assist with money management, but shouldn't replace bank accounts.
  2. Determine If Your Teen Is Ready:

    Determine if you child is ready for a credit card. Can he manage his own money? Is he responsible with his wallet? Use your judgment to determine if your teen is ready for the added responsibility.
  3. Discuss the Pros and Cons:

    Before you get the credit card, be sure your teen understands the pros and cons of a credit card. Discuss late payments, interest, and the impact of credit reports. In addition, teach your teen that future housing, insurance premiums, and job offers may benefit from an established credit history.
  4. Evaluate Types of Credit Cards:

    There are different types of credit cards that can meet your needs:
    • Your own card with your teen added as an authorized user
    • A prepaid card like Visa Buxx
    • A separate lower limit card
    You may want to avoid adding your child to your own card because your limit may be much higher than you want your teen to have access to. In addition, if they make a mistake, it will be easier to sort out if your purchases are not affected.
  5. Establish Guidelines:

    Set ground rules for your teen to use the card. Determine what purchases are allowed. Will the card only be used for emergencies? Or can they purchase gas and food with it?
  6. Explain Payment Requirements:

    Teach your teen to pay the bill in full every month. Explain the effect that minimum payments and interest will have on his bill.
  7. Monitor the Use:

    You will need access to monitor the card. By regularly monitoring the purchases you will be able to help your teen follow the guidelines and payments that you established.
  8. Allow Small Mistakes:

    Errors are great learning tools. If you teen forgets to pay his bill on time, a late fee will be powerful message; hopefully, one he will not repeat again.
  9. Outline Consequences:

    Determine the consequences up front for spending too much, making a late payment, or being irresponsible with the credit card. While you may want to allow a small mistake, determine the consequences for repeated mistakes or misuse.
  10. Should You Bailout Your Teen?:

    Even with your good intentions to guide your child through the credit card process, it's possible he could get in over his head and be unable to pay his bill. If you pay the bill for your teen, be sure to consider the message you are sending. You may want to make your teen pay off his bill or work it off to learn the dangers of overspending with credit cards.

Tips:

  1. To encourage your teen to keep his spending in line, teach him to subtract purchases as he makes them from his bank account that will be used to pay the bill.
  2. Prepaid cards and lower limit cards can be effective tools for teens to begin with.
  3. If he is forced to pay interest and fees, help him calculate the total amount paid. If he sees that he paid much more than he expected, you may find it will never happen again.

What You Need

  • Credit Card
  • Bank Statements or Checkbook
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