Teens And Credit Cards: Teaching Teens To Master That Card
Of all the financial skills parents must teach, the appropriate use of a credit card is among the most important. Teens and credit cards can get into a lot of trouble together. it’s just too easy to make costly mistakes with plastic if you’re not familiar with how it works. But because teenagers can’t get their own credit card until they’re at least 18 years old, it can be tricky to teach them how to responsibly use credit in a hands-on way.
Teens and Credit Cards
Here are some ideas to get you started talking about teens and credit cards.
1. Start talking about credit.
If you haven’t explained how credit cards work, now’s the time. The most important point to stress: It’s not free money, but rather a convenient way to pay. Emphasize that it’s best to treat a credit card like cash: Don’t buy what you can’t afford to pay for each month.
2. Explain how interest works.
When you pay with a credit card, you are borrowing money, and if you don’t pay your balance when it’s due, you’ll be charged interest (a lot of interest, in fact). Chances are, your teenager has no understanding of how interest works, so you’ll need to explain it. You can also use an online calculator (bit.ly/YT-credit) to demonstrate what it means to pay interest on a credit card debt.
3. Review statements.
Your own statements can serve as a learning tool here. Talk about what each section means. Explain the consequences of late or missed payments, which, in addition to interest, include fees and a hit to your credit rating. Also point out the “minimum payment due,” and explain why this is not what you should pay, but rather the least amount you can pay and keep the card active.
4. Discuss a “credit limit” versus an actual budget.
Credit limits are confusing, especially for teenagers. Stress that just because the credit limit is, say, $5,000, that doesn’t mean you should spend $5,000. In general, teenagers who learn to budget will be better equipped to use credit responsibly than those who don’t.
5. Make your teenager an authorized user.
You can add your teenager as an authorized user on your own card around age 14 (depending on the card issuer). If you decide to take this step, set strict limits for how your teenager can use the card, and be sure to review your child’s spending each month. A great way to drive home the importance of sticking to a budget: Require