Help Your Teen Learn to Use A Credit Card Responsibly


With the average American having just over $9000 in credit card debt, it is very important to teach the next generation about good financial behavior and the benefits and dangers of using credit cards.  Parents should follow these steps to help their children start managing their money and using credit cards wisely- before they get to college and are given cards by all the major companies without the knowledge or supervision of their parents. 

Make Sure Your Teen Has A Source of Income
Credit card companies have been known to issue credit cards to babies, pets and the deceased, so it is likely that your teen can get one without a source of income.  However this is not responsible as they will need money to pay off what they buy on credit.  Most teens can earn money tossing newspapers, babysitting or working at a fast food joint.  None of these jobs are very sexy and your teen might balk at the idea of taking on a minimum wage paying job.  If they are self-motivated and have a strong work ethic, you could push them in the direction of entrepreneurship.  Teens can make good money cutting grass, removing snow, selling homemade treats at farmer's markets or reselling thrift store treasures online. 

Open A Checking and A Savings Account
In order to pay off a credit card balance, your teen will need a way to easily and safely send in her payments.  With a checking account she can either mail in a check or send payments via the internet. A savings account is equally important.  Encourage them to "pay themselves" first by putting aside at least 5% of their income into savings each pay period. 

Help Them Set Up Online Bill Pay
The best way to insure that your teen is responsible and pays off his credit card each month is to set up online bill pay.  This makes it possible to just log into the credit card account, verify the purchases and then a few mouse clicks later and the money is sent from his bank account to the credit card company.  If you don't already do this with your own credit card account, try it first to learn how easy it really is, and then help your teen set it up for his accounts.   
Help Your Teen Create A Budget
Now that your teen has a job, or if he gets an allowance, you need to explain the usefulness of a budget.  Be aware that unless your child is a "math nerd" he'll not be too keen on this idea.  Seeing is believing, so if you have a household budget that is already in place, it will be more powerful than you sitting Junior down to make one from scratch.  If you don't have one, now is a great time to get one going and be a good example.  Remember kids remember more of what they see than what they hear. 
When making a budget make sure that every dollar is accounted for once the budget is done.  Be sure to include line items for anything you expect him to purchase on his own like clothing, eating out with friends and school sports fees.  Also encourage him to include a savings account for college and retirement and charitable giving. 
Teach Your Teen the Power Of Interest
When you're talking about interest in your savings account or retirement fund, compound interest is a very good thing, but with credit card interest the power is of no benefit to your teen. Explain to them that interest builds up if they are unable to pay off the balance each month and that they shouldn't charge anything that they won't be able to pay off.  
Get A Credit Card With A Low Limit
For most minors, credit cards will have a low limit, usually $500 or less.  If your teenager's card comes with a higher limit, as a responsible adult, you should call and ask to have it lowered.  In the event that your teen does go on a shopping spree or if the card is stole, you will have fewer problems helping them pay off $500 rather than $3500.  
Put Your Name on the Account
If your teen is still a minor, it is a good idea to be a co-singer on his credit card.  In fact credit card companies should require this, but some are known to overlook this step.  By doing this you can legally look at the account activity but you are also responsible for any debt that is incurred on the card. If the limit is small, $100-500, you won't be out much anyway.  Let your teen know that you will let him stay in control and only interfere when you deem it necessary.  
Once your teen is a legal adult, you need to talk about whether or not you'll stay on the account.  For the sake of letting your, now adult, child learn from his own mistakes, it's best to get your name off of the card so that you won't be held liable for any financial mess that he may incur. 

Help Your Teen Establish Financial Goals
Having a bigger picture of their spending, rather than looking at what they'll buy during the current school year, can have a tremendous impact on teens.  Depending on your family's financial situation and your expectations of your child, she may be looking at having to shell out $10,000 a year to attend college or paying for that $5000 first car herself.  Let your teen know what you will and will not be paying for as they enter into adulthood and help them make a plan for how they will finance their plans.  Help them set up sub-savings account at their bank, show them how to start a Roth IRA or find a great deal on a reliable used car.  
Unfortunately your teen will probably learn very little of this from any class that is offered at school.  It's a huge responsibility, but someone has to do it and what a better person to encourage your teen than a parent.  If you think you aren't the most qualified person to do so because your finances are in a mess, get a mentor to help your family and work together to get on the path to financial success.