By Diana Simeon
Of all the financial skills parents must teach, the appropriate use of a credit card is among the most important. Teens and credit cards can get into a lot of trouble together. it’s just too easy to make costly mistakes with plastic if you’re not familiar with how it works. But because ?teenagers can’t get ?their ?own? credit? card until they’re at least 18 years old, ?it ?can be ?tricky ?to ?teach them how to responsibly use ?credit ?in a? hands-on? way.
Teens and Credit Cards
Here are some ideas to get you started talking about teens and credit cards.
1.? Start talking? about? credit.
If you haven’t explained how ?credit cards work, now’s the time.?The most important point to stress: It’s not free money, but rather a convenient way to? pay.?Emphasize ?that it’s best to treat a credit card? like? cash: Don’t buy what you can’t afford to pay for? each month.
2. ?Explain how? interest? works.
When you pay with a credit card, you are borrowing money, and if you don’t pay your balance when it’s due, you’ll be charged interest (a lot of interest, in fact).? Chances are, your ?teenager ?has? no ?understanding of ?how ?interest ?works, so you’ll need to explain it. You can also use an? online? calculator ?(bit.ly/YT-credit) ?to demonstrate ?what it means to ?pay ?interest on a credit card debt.
3. Review statements.
Your? own statements ?can serve ?as a learning tool ?here. Talk about what each section means. Explain the consequences of late or missed payments,?which, in addition to ?interest, include ?fees and a hit to your credit rating.?Also ?point out the “minimum payment due,” and explain? why this is? not? what you ?should pay, but rather the least amount you can pay and keep the card? active.
4. ?Discuss? a? “credit limit”? versus ?an actual budget.
Credit limits are confusing, especially for teenagers. ?Stress? that? just? because the ?credit limit is, say, $5,000, ?that doesn’t? mean? you ?should ?spend $5,000. ?In general, teenagers who learn to ?budget ?will be better equipped to use? credit? responsibly? than? those? who don’t.
5.? Make your? teenager? an ?authorized user.
You can add your teenager as? an authorized user on your ?own ?card? around age? 14 ?(depending on the card issuer). ?If you? decide to take this step,? set? strict ?limits for ?how ?your teenager can use ?the card, and ?be sure to review ?your child’s ?spending each month. A great way to drive home the importance of sticking to a budget: Require your teenager to reimburse you for his credit-card purchases? each month,? and charge him interest if he can’t.
Diana Simeon is an editorial consultant for Your Teen.