Until the last few years, it was easy for parents to think that the only time they needed to explain the ins and outs of credit cards was when their small children began associating the idea of handing over a small, rectangular piece of plastic to a cashier with the idea of unlimited spending power. (Yikes!)
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These days, parents know that’s only the first time. Conversations about credit cards and general finances should take place on a regular basis — in the living room, around the dinner table, in the car — wherever and whatever it takes to get the knowledge through to growing minds.
By the time the kids are in their late teens, it’s a good idea to help them thoughtfully build a credit history so that when it comes time to apply for a mortgage or other types of loans as adults, they’re ready. This is something that can be daunting and, frankly, a vicious circle. Banks are no longer happy to offer credit to beginners, yet if beginners want to build a credit history they need for the banks to take the chance.
Opening a credit card account is a great way for teenagers to gain experience with handling credit, as long as they know what they’re doing. When it comes to teenagers and credit cards, try these tips on how to get them on the road to becoming a responsible credit card user.
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1. Talk, talk, talk. Have multiple discussions about how credit cards work, interest rates, living within one’s means, the effects of making late payments, paying only the minimum amount each month, and what a credit score is and how irresponsibility can affect it.
2. Open a credit card. You can choose to get a card for your teen that is connected to your account (basically he would be an additional user), or your teen—if eighteen years old or older—can apply for his own student credit card. A simple internet search can help you find the best student credit cards available at any given moment, but don’t rush: doing lots of research—with your teen at your side—can prove to be a valuable activity and a great way to ensure that your teen is informed and comfortable. (A pre-paid debit card, while a good tool for teaching financial responsibility, does not affect credit scores, so if building credit is your goal, this will not work.)
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3. Teach responsible usage. Opening a credit card and letting it sit unused will not do anything of note for a credit score. Suggest that your teen use the credit card for small purchases and then pay the bill in full when the statement comes to avoid both interest charges and the slippery slope of credit card debt. For college students, a credit card can be a wonderful tool for groceries and textbooks, providing the balance is brought back to zero each month.
It’s difficult to get around in today’s world without having access to credit. Teaching your children how to get credit and use it responsibly is an important lesson that will “pay off “for a lifetime!
Melisa Wells is financial contributor for Manilla.com and founder of SuburbanScrawl.com.
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