Teenagers and Credit Cards
Prepare your teens for the world of plastic by educating them on the upsides and downsides of credit card use.
Teenagers love to spend money. Credit card companies have taken notice and are doing everything to lure them in. Although laws from the Consumer Financial Protection Bureau (CFPB) prevent your kids from taking out credit cards without your permission, that doesn’t stop them from bugging you constantly to get them their own card.
“Credit card companies have been pursuing teenagers and designing credit cards so they can ‘learn’ about the credit system,” says Gary Herman, President of Consolidated Credit. “And although most teenagers don’t fully understand the repercussions of using a credit card and the impact it can have on their future financial situations, more teens are working and are spending their own money. Credit card companies believe they have hit the jackpot.”
That means it’s important for parents to help teenagers understand the cost of credit and how to use it wisely, early. The following tips can help you give your teens a good start with credit.
Tip No. 1: Get your teen a checking account FIRST to help them master the basics.
In addition to providing you the monitoring power over the account, a checking account will provide your teens with hands-on financial training. Teenagers can learn how to balance their budget and track spending. This introductory course is crucial in preparing them for debit and credit cards. Teach them key banking terms. Good banking practices will lead to good credit practices.
Tip No. 2: Teach them to keep their cards safe and secret PIN hidden.
Teenagers must be taught that an ATM card is cash and should be treated as such. Although they have the look and feel of a credit card, they have a secret PIN that should be kept a secret. If the credit or ATM cards are lost or stolen it should be reported immediately to the credit card company or the bank. Go over purchases and statements with a fine tooth comb to make sure all purchases are authorized and that hackers have not gotten hold of your card.
Tip No. 3: Once the training wheels are off, get a retail store or local bank credit card.
Once your teens have mastered the basics of keeping track of money in the bank, a credit card can be introduced. Parents can apply for a joint credit card at a retail store or local bank. Make it clear that it’s not free money and has to be paid back with interest. Give them a lesson on interest rates and how interest is calculated. Emphasize the importance of paying off the balance in full before the grace period expires. Encourage your teens to always read and understand the terms of their card. Key and important messages may be buried in there.
Tip No. 4: Make sure they understand the purpose of the credit card.
Your teen should know the card is reserved for emergencies or that it’s for specific purposes, such as school items, clothes, or shoes. Set a dollar amount as to how much should be spent for each purpose. Surpassing that limit should be grounds for punishment or confiscation of the card. Going over the credit limit is a telltale sign that your teen isn’t ready for credit cards.
Tip No. 5: Teach them that just because it’s offered, doesn’t mean you have to accept it.
As your child turns 18 or even before their 18th birthday, credit card offers will bombard your mailbox and because teens can apply for their own card on their 18th birthday, parents should be especially vigilant. If you or your teen decide to accept an offer and apply, be sure that credit card issuer fully discloses federal laws to your teens.
Thankfully, new legislation prevents anyone under 21 from getting credit on their own unless they can prove that they receive income from some kind of employment. Banks are also required to reveal costs, such as annual fees and finance charges. This helps teens avoid debt traps for new credit users that have caused so many problems in the past.
Tip No. 6: Explain the importance of a good credit history.
Your teen’s credit score determines their creditworthiness. Teenagers should be taught the importance of a credit score and the repercussions of a bad credit history. The federal government mandates that everyone can get a free credit report annually, so teach your teens how to pull their reports and how to interpret the results. Check for errors and report any inaccuracies to the credit bureaus.
Tip No. 7: Have them pick up the tab.
Typically teens are more lax with spending your money and show more restraint when spending theirs. If your teens have a job or gets an allowance, a great way to teach them responsibility is to have them pay partial or full balances on their credit cards. Doing so will teach them how to appreciate the value of money.
Tip No. 8: The internet, teens and credit cards can be an unsettling combination.
The free range of the Internet combined with the purchasing convenience of a credit card can be a recipe for disaster. Monitor the sites your kids are visiting and the orders they are placing online. Teach them how to discern credible sites as hackers are constantly lurking in the shadows of the Internet. Always go over the credit card statements with your teens.
Tip No. 9: Teach them to delay the instant gratification
Today owning a credit card is seen as a necessity or even a rite of passage. Our teens are bombarded with messages compelling them to buy now; pay later. Teach your teens to delay that gratification and encourage them to save up to buy what they need. If they can’t afford to pay cash, then they can’t afford it! Remember your teens are watching you so use your own credit wisely.
Save your teens from future financial ruin
Have you or your teens gone “credit card wild” and need a way out of debt? If swiping has left you drowning in debt, call Consolidated Credit for help at . Our certified credit counselors are standing by to take your call. You may also request a free Debt & Budget Analysis online.