Teaching Your Kids about Credit Cards Experts advise parents to introduce their kids to financial education while they are still at home, because more often during the senior years in high school or early in college, teenagers will start receiving credit card and other loan offers, although there are financial products for children at different ages. It is never too soon to introduce your teenagers to credit cards and the use of financial services responsibly, because this education is not usually available at school before college, and most kids have summer jobs. Parents must instill the values about and responsibilities of having money on their own and their freedom to spend wisely. Early education prevents them from getting into trouble paying high interest rates or fall into missing payments. If teens learn about how credit cards work and understand what an unpaid or late bill involves, they are likely to analyze credit offers before take any, becoming more responsible about their payments and, in the long run, avoiding to amass excessive debt that will damage their credit ratings. The Credit Union National Association (CUNA) encourage parents to help teenagers picking out their credit card for the first time, although they have to learn about the card on their own and deal with the responsibility. In fact, preschoolers should be granted with a savings account in order to promote future financial goals. Some credit unions offer kids rewards for saving and, over time, when they begin to earn their own money, it is recommended teaching them money management through debit cards or checking accounts. These financial tools are useful to prepare teenagers to take the responsibility of a credit card later. However, keep in mind that balances on such "training accounts" should be limited to their own savings and earnings. As a parent, you may feel tempted to run them up if they want to achieve a particular financial goal. This attitude may destroy any effort to make them responsible for their finances. While young people below 12 can be ready to handle financial challenges, others might not, even at 19. Misconceptions in teenagers may arise, in the belief that you will rescue them if they go wrong with their credit. Parents are there to help when needed, however only after an effort has been made by the teenager themselves. The sooner your teens are willing to learn how to use financial services properly, the more responsible they will be with credit cards. When they achieve the skill necessary using their debit cards, ATM or checking accounts, you can open for them a credit account. Make sure they start with low credit limits such as $200 to $300, so they can build a positive credit history paying their balance off regularly and on time. Good credit ratings will be necessary not only to finance their education expenses but also for basic transactions, including getting a job, obtaining a car loan or renting an apartment. Educate your teens about hidden costs of using credit that may lead them to make wrong decisions, such as interest charges generated from purchases made for more than what they can pay back in one month. Some financial experts suggest that you give your teenagers an authorized user’s card on your credit account as a first step in preparing them toward getting their own credit card later. If you manage your teens' credit from this perspective, they will pay you for purchases made during the month instead of paying it to the bank. This action is helpful to measure their experience handling their own credit history, without affecting their credit rating if they fail to pay you responsibly. Experts remark that no children or teenager should be allowed to use any type of financial services without demonstrating that they are ready for this challenge. Once your teenagers demonstrate proficiency with their finances, it is time to prepare them for a real credit card that they may choose from the wide range of credit offers that they are going to receive as their college years approach. Help them to understand how compound interest works and how to choose a low-rate, no-annual-fee card. Mention the fact that paying late or exceeding the credit limit will result in significant fees, and possibly higher interest rates, and how the misuse of their card will create a poor credit history. Talk about the grace periods that most credit cards offer and how they help to avoid finance charges if they do not carry a balance that make them lose the grace period. Last but not least, check with your local credit unions. Many of them offer youth financial education classes that your teenagers may attend as complementary education for their future. Additional Resources:
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