Last year, the biggest new teen fashion accessory was the cell phone. This year, the hottest teen accessory is a credit card. According to a national survey, the average teen spends about $100 a week, and over $5,000 a year. That all adds up to a nearly $200 billion market. And while legally, teens must be 18 years old before they can hold a credit card solely in their own name, teens as young as thirteen are being targeted with credit card applications that merely require a parent's signature.
If your home is like the average home with teenagers, talking with your teens about credit is about on a par with having “that” talk with them - both in importance and in the avoidance factor. Consider that by the time the average teen graduates from college, they'll be carrying twice as much credit card debt as they did when they entered college. Consider that the most likely age group to file for bankruptcy is the 25-34 year old age group. Consider that for most, credit card debt is the beginning of a downward spiral into serious debt that will affect their lives for years. Then consider that spending a few hours a week discussing credit and teaching your teen to handle credit and credit cards can make the difference between being bankrupt at 25 and a house of their own at the same age.
A child at middle school age is old enough to understand the concepts of credit, interest and balancing accounts. One of the best ways to teach your child about handling money and credit is to have them sit with you while you do the bills and balance your checkbook, and explain what you are doing and why. It's also a good age to open a basic checking account with a debit card for your child.
Debit cards and prepaid credit cards are great 'training wheels' for using credit. The fact that a child can only spend the money that is already there in the account is a good basis for learning about budgeting, and gives you the control to set limits. While some experts suggest that you make regular deposits in your child's account as a way of teaching them to budget and handle money, it may be better to give them cash and have THEM make the deposit so that they understand that the money comes from THEIR money rather than appearing out of thin air.
By the time teens are in their junior or senior year in high school, they may be ready to handle a low limit credit card, or a secured credit card. Before handing the credit card over to your teen, though, sit down with them and have a long, hard talk about what a credit card actually is. For many, a credit card with a $300 limit is $300 in extra money to spend. Make sure that they understand some basic facts:
* Each purchase that you make on a credit card is a loan. And like any other loan, there are interest charges on the money that you borrow. When you purchase something on a credit card, you are taking out a loan - and the end result is that the item you purchase will cost you more money.
* Interest charges accrue month by month. The best way to avoid paying excessive interest is to pay off your credit card bill in full each month.
* If you can't pay the full amount of your credit card bill each month, ALWAYS pay more than the minimum. Take the time to explain compounding interest to your teen so that they understand that the longer they put off paying the card in full, the more they end up paying.
* Teach your teen to review each statement and find any inaccuracies, and teach them how to report inaccuracies to the credit card company.
If you take the time to teach your teenager how to handle credit while they are still under your roof, while you can still control the damage, your teen will hit the college campus with the savvy to handle money and credit without destroying the next several years of their future.
If you’d like to know more about teaching your teens about credit, visit the Jumpstart Coalition for Personal Financial Literacy here: http://www.jumpstart.org/
26th Aug 2005
