School may be starting soon for many teens across the country. And though students will be learning math and history, it’s also marks a time when parents can teach them about credit card debt.
Jersey Journal columnist Alky Danikas suggests that if parents have decided to allow their child to have a credit card, it should be one with a low limit. Danikas suggests a card with a limit between $300 and $1,000.
He also suggests that parents should co-sign for the card in order to get a lower interest rate. In fact, new regulations from the Credit Card Accountability, Responsibility and Disclosure act will require people under 21 to get a parent to co-sign for a credit card.
Danikas said parents need to teach their children how a credit card debt works. Some teens may think credit cards function like debit cards. However, they have to learn that they are purchasing things with credit rather than cash.
The counselors at Consolidated Credit caution parents that it is critical to teach children good credit habits. Hopefully the economic turmoil we are experiencing can help kids to learn credit discipline and, in turn, create a good credit score and history.
Often kids grow up without learning anything about the rules of credit, and they really have nowhere to learn these things except from their parents. If parents send their kids off to school without having taught them the basics of money management – particularly as it applies to credit cards – maybe they shouldn’t be surprised when their children wind up with credit problems.
One thing parents can do is sit down with their teen and look over a credit card statement with them. That way, parents can teach their child about minimum payments and how interest rates work.
"I strongly suggest focusing on the interest portion of the statement and adding that amount to some desired amount of principal reduction," Danikas said.