teaching kids about credit

Introducing Your Teen to Credit

April 9, 2015 : Miranda Marquit - Guest Contributor

Ed note: I rarely use cash. It drives my parents crazy. But the truth is, I just find credit cards easier. However, lately I’ve been thinking that my young daughter may only see me use credit cards without truly understanding what all it entails. Miranda Marquit is a few years ahead of me here and has some great lessons for how to teach teenagers about credit. 

My son turns 13 this year, and I’ve been thinking about how to teach him about increasingly sophisticated financial topics. By the teen years, most kids are beyond the basic lessons of spending and saving. While these are important lessons to learn, and you should continue to reinforce these lessons as your children grow, you also need to prepare your teen for the realities of our credit culture.

One of the best things you can do is to teach your child responsible credit use, emphasizing the importance of buying only what you can truly afford.

Build on a Solid Foundation

The first step is to build on a solid financial foundation. Before you tackle credit, you should make sure your child understands the importance of making tough choices with money. Your child should understand the importance of saving up for purchases, plan on setting aside money for long-term goals and emergencies and show an ability to follow sound financial management practices.

Loans and Interest

Even though he isn’t quite a teenager, my son has had some experience with paying interest. We once let him take an advance on his allowance. His payment plan was to repay us $5 over the course of four weeks. Instead of repaying $18, which is what he borrowed, he repaid $20. We showed him the math and explained that when you use other people’s money, you have to pay extra.

That’s stuck with him. We can easily convert that practical lesson into a lesson about credit. Make it clear that when you use credit, you are using someone else’s money. If you carry a balance, you have to pay interest. Let your teen see that it makes more sense for them to save up to make purchases.

Responsible Credit Card Use

Next, talk about the uses of credit: It’s convenient, and it’s possible to earn rewards. However, the important thing is to avoid paying interest. I’m upfront with my son about my credit card use. I show him that I use my credit card, but that I use it as part of my spending plan. I have the money in the bank, so I pay off what I spend. This allows me to earn rewards without paying interest.

In order to help your child get used to using plastic, consider starting with debit or a gift card. If your bank and your state allow it, open a joint account and get a debit card. Prepaid debit cards and branded gift cards can also provide practice (even if you end up paying an activation fee). The idea is to help your teen get used to swiping plastic and tracking what is spent. Getting used to that with a debit card, which doesn’t allow for overspending, can be good practice for later.

Credit is so common in our financial landscape that it’s important to address it with your teen. Help your child learn about responsible credit use now, and he or she will be less likely to succumb to credit card debt later.

Additional money and credit management resources for teens:

Pocket Cents

The Mint

H&R Block Dollars and Sense

Miranda Marquit - Guest Contributor

Miranda Marquit - Guest Contributor

Planting Money Seeds

Miranda is a professional personal finance journalist and founded Planting Money Seeds. Her work has been mentioned in USA Today, The Huffington Post, The San Francisco Chronicle, The New York Times, The Wall Street Journal, and other publications.

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