When your kids were small you might have taught them about the value of money by giving them an allowance, paying them to do chores, or by having a summertime lemonade or cookie sale. All are great teaching tools, but what about when they get older? Given the recent debt climate in US, you may want to teach your child how to use credit cards and credit responsibly before they head off to college.
Teens and young adults, between 18 and 21, have gotten into financial trouble with credit cards in the past, so much so that the legislature passed the Credit Card Accountability Responsibility and Disclosure Act in 2009. Now anyone under 21 must have a cosigner or a source of demonstrable income to get a credit card. With these new requirements parents often have to play a very active role in their children’s financial life and profile. Whether you’re planning to add your child onto your card as an authorized user or co-signing for a card, education is the key to keeping “things” on track.
One way you can get a leg up on the process of educating your child is by starting them off with a checking account – children from 13 and up can get a checking account with a parents help. Banks often include tools so that parents can keep track of their child’s spending habits. A debt card, a standard with most accounts these days, can be a good first step in getting your child’s credit card education started.
These days even stars like are getting into the mix by releasing prepaid cards, and one the newest ones is Justin Bieber’s recently announced prepaid debit card for teenagers. However, whether your checking out a bank card, credit card or one of these prepaid cards its important to explore their ins and outs, so your know what your getting, and you are not surprised by fees. There are some great online resources that provide information, including this recently released study giving you detailed information on prepaid cards. Then no matter which option you decide to go with, once your child has established a history of financial responsibility, then you may want to check out credit card options.
It’s easy to assume that your kids know what credit cards are, how their used and what the consequences of bad spending habits are, but don’t. You can get that education started at home by talking with your child, and explaining how credit cards are used, including how they can be useful financial tools when used correctly. Credit card debt has become a source of trouble for many consumers, so often the tendency is to make credit cards out to be the bad guy. However, experts suggest that this approach can be confusing and counterproductive in the long run, so instead focus on the keys to credit card health, like timely bill payments and using them wisely, along with discussions about modern day pitfalls, like identity theft and online fraud.
Cosigning for a credit card for your child may be a way to get their credit history going, but only after you’ve realistically taken stock of your child’s abilities in this area. You may want to start off slow, by making them an authorized user on one of your credit cards, so you can track their spending to see where their “at” in terms of financial responsibility. If their using it wisely you may eventually want to reward them with a card of their own, and if not you may want to take them off your account, and wait until you feel like their ready to try again.
Being thoughtful and educationally minded about credit cards can help you make sure your children start out with a good credit history, rather than being mired in debt in their teens and 20’s.
Dar Dowling Bio:
Dar Dowling is a New York City based writer, blogger, and artist who writes for a variety of websites, magazines and blogs, about topics ranging from personal finance, and business to real estate, architecture, and entertainment. Right now she’s gearing up to publish her first graphic novel, and a children’s book.