Credit Cards – Teach Your Kids About Them Early

     Your teenager is (much to your likely dismay) developing a healthy degree of independence — though he or she clearly still needs your support and advice. With more money to spend and infinite ways to spend it, your kids can easily get into financial trouble before they’ve even moved out of the house. It’s not the easiest way to gain cool points with the young ‘uns in the here and now, but teach them a few financial lessons and life will be much easier for everyone in the long run. Credit cards are a particularly sticky point for some young adults, but with your guidance, your teen will soon develop an understanding of the pros and cons of consumer credit — necessary knowledge if one hopes to survive in the real world.

     First of all, take a bit of comfort in the fact that most major credit card issuers require an adult to cosign on credit cards issued to those under the age of 18. That does not, however, mean you can successfully monitor every move your teenager makes with the card. If you do decide to cosign a credit card application for your teen, you might be best served by asking the credit card company to assign a low credit limit for starters (e.g., $400). This can help your new cardholder learn to manage credit without getting into serious trouble.
 
     Here are some things to discuss before the credit card comes out of the wallet:

     •    Designate specific charges for which the card can be used (e.g., emergencies, food).
     •    Review the credit card agreement together, making sure your teen understands how much interest will accrue on any unpaid balance, what sort of grace period applies, and what fees will be charged if due dates are missed.
     •    Come to an agreement on how the bill will be paid, and figure out exactly what will happen if the bill isn’t paid on time.
     •    Make sure your teenager understands how long it could take to pay off any credit card balance if only the minimum payments are made each month. You can demonstrate this using a calculator, and be certain to discuss the difference in the total amount paid under various payment plan scenarios.

     If putting a credit card in your child’s wallet frightens you, you always have the option of starting off with a prepaid spending card. These look and behave just like credit cards when being used, but work more like a prepaid phone card. You load the card with whatever dollar amount you choose, and your teen then use it anywhere credit is accepted. Purchases are deducted from the card balance, and you can pack more money on there whenever you want. Be sure to know that there may be some fees associated with the card, but no interest or debt ever accrues.
     Written Josh Michaels who is a freelance writer. He survives on very little income and carefully considered financial decisions. This combination has allowed him to have fun, travel the world, and start a retirement account – all without the pleasure of holding a full-time job. He can be reached at joshmichaelsmoney@hotmail.com.