Deciding when to give a credit card to your teen

Educate your teens on the upsides and downsides of credit card use

As a parent, you might be hesitant in handing your teen a credit card. With proper guidance, though, plastic can be a great tool to teach your older children money management skills and how to build a strong credit history for the future.

Credit card companies have taken notice that teens love spending money and are doing everything to lure them in. And although many teenagers do not completely understand the repercussions of using a credit card and its potential impact on their financial future, more teens are working and spending their own money. Credit card companies have really hit the jackpot

This means that it’s important for parents to teach their teenagers about the cost of credit and how to use it wisely in their early years. The following tips can help your teens start by maintaining good credit.

Tip #1 Get your teen a chequing account BEFORE you help them master the basics

In addition to allowing you to monitor your teen’s account, using a chequing account will provide your teen with hands-on financial training. A teen can check their balance online to manage their budget and track spending. In addition to learning banking terms, they will learn that good banking practices lead to good credit habits.

Tip #2 Teach them to keep their credit cards safe and secret PIN hidden

Tell your teen to keep their secret PIN to themselves. Always go over purchases and statements cautiously to make sure all purchases are authorized and that hackers have not gotten hold of your teen’s card. If the credit or ATM cards are lost or stolen, this loss should be reported immediately to the credit card company or bank.

Tip #3 Once they no longer need training wheels, get a bank or retail store credit card

Once your teens have mastered the basics of keeping track of money in the bank, a credit card may be introduced. Parents can apply for a joint credit card, allowing them access to their teen’s account, at the local bank or retail store. Make it clear that the money is not free and must be paid back with interest. Give them a lesson on interest rates and how interest gets calculated. Discuss the importance of paying off your balance in full before the grace period is over. Ask your teens to read over the terms and conditions of their credit card to better understand key and important messages and answer any questions they might have.

Tip #4 Make sure they understand the purpose for using their card

Teach your teen that the card is only to be used for emergencies or specific situations, such as buying school items, clothes, or cell phone bills. Set a dollar amount as to how much money should be spent for each item. Surpassing that limit would equal grounds for discipline or confiscating the card. If the credit limit is passed again and again, this is a red-light sign that your teen isn’t ready for credit cards.

Tip #5 Teach them that just because its offered doesn’t mean you should accept

Since your teen may apply for their own card at the age of 18, parents should be especially vigilant. If your teen decides to accept an offer and apply, be sure that the credit card issuer fully discloses federal laws to your teens. Banks are also required to reveal costs, such as annual fees and finance charges. This helps teens avoid debt pitfalls of new credit card users that have caused problems in the past.

Tip #6 Explain what a good credit history means and its importance

Creditworthiness is determined by the teen’s credit profile. You should teach your teenager the importance of a credit score and the repercussions of a bad credit history. Teach your teens how to pull credit reports and how to interpret the results. Look for errors and report any inaccuracies to the credit bureaus.

Tip #7 Have them pay for the tab

Usually, teens are more relaxed with spending your money as opposed to their own income. If your teens have a job or allowance, you can teach them responsibility by having them pay partial or full balances on their credit cards. Doing so will teach them how to appreciate the value of money.

Tip #8 Explain the dangers of internet shopping with their credit card

The internet is a dangerous place for convenient purchasing with a credit card, creating a recipe for disaster. Monitor the sites your teen is visiting and the orders they are placing online. Teach them how to discern a credible website so that hackers do not steal their credit card information and their identity. Always go over the credit card statement with your teens.

Tip #9 Teach them to avoid seeking instant gratification

Owning a credit card in today’s society is seen as a necessity, or even a rite of passage. Our teens are bombarded with advertising that tells them to buy now; pay later. Teach your teens to delay instant gratification, and encourage them to save up to buy what they need. If they can’t afford to pay cash, they shouldn’t buy it! Remember, your teens are watching your habits too, so use credit well.

Help your teens avoid financial ruin

Have you or your teen gone “credit crazy” and need a way out of debt? If swiping has left you in a downward debt spiral, call Consolidated Credit for help at . Our trained credit counsellors are available to help you through these challenges. You may also request a Free Debt Analysis online.

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