As our children grow, they are exposed to many different learning experiences. However, many children are never taught anything about financial literacy or the use of a credit card. Teachers rarely talk about credit cards or credit card debt, so it is critical for parents to discuss the virtues and perils of using a credit card. Then, these young adults will know how to handle that first "pre-approved" offer they will likely receive on their 18th birthday. Here are five credit card tips for teenagers:
Get Them A Credit Card
This may sound strange as the first tip, but it is important to teach teenagers how to use a credit card properly. It is a good idea to get them their own credit card while they live under your roof, so you can monitor their usage of the card. Sit down and discuss the benefits and drawbacks to a credit card. Be honest with them and tell them the mistakes you have made with using a credit card--and how much those mistakes may have cost.
Teach Them About Debt
Many teens know credit cards are used for purchases, but they may not understand how debt works. Discuss this with them in understandable ways. Explain how credit card debt works, how it affects your credit score, and why it is critical to pay off your entire balance on time each month.
Teach Them About Card Terms
It is also important to teach them about the many credit card terms. Teens need to understand intro periods, grace periods, interest rates and credit limits. Allow them to ask any questions to make sure they fully understand these terms and how credit cards work.
Teach Them The Benefits Of Using Credit Cards
There are many advantages to having a credit card. You have the ability to earn rewards, so using your credit card can actually make you money. You have fraud protection and many warranties. You start to build a credit history. Finally, credit card statements provide a terrific accounting system to show where you have spent your money. But if you don't pay the balance off in full on time each month, then these benefits are far outweighed by the steep financial penalties brought on by the card's high interest rates.
Pull Their Credit History With Them
Everyone is entitled to receive a free credit report from each of the three major credit bureaus every year. It is important to take advantage of this. Analyze your credit report, making sure there are no mistakes. Teach your young adult that a credit score can improve by being financially responsible with your money and your monthly bills.