How to Teach Your Kids Responsible Credit Card Habits

When it comes to money, I fully admit that I am a complete and total trainwreck.  It's something that I'm currently working on learning how to successfully conquer, but it's a daily struggle for me.  Because of my difficulties, it is important for me to figure out how to teach my children the value of money and how to manage it.  I don't want them to face the same struggles that I daily face when they are an adult.  The trouble comes, when you aren't good at it yourself, it's hard to teach others.  So, for this topic I have reached out to a fellow blogger, Josh Wilson from FamilyFaithFinance.com to help me out.  Today, Josh brings us a post on how to teach kids to responsibly use credit cards!  A lesson that all kids, and even some adults, needs to pay close attention to.

 

How to Teach Your Kids Responsible Credit Card Habits

 

By Josh Wilson, a parent who plans on having the most financially savvy kids in the neighborhood.

 

Surprisingly, finances are not required in most high schools and many students do not even know how to write a check by the time they get to college. That said, author Jayne Pearl, the writer of Kids and Money: Giving Them the Savvy to Succeed Financially, believes it’s “easy to teach kids about money.”

 

Doing so can start at a very early age. When a child is only around 2 or 3, they start to learn how to identify coins and dollar bills. By age 5, kids can start clipping coupons and a year later, they should be able to visit the bank with an adult. By age 12, they should understand comparison-shopping and maybe even help host a yard sale.

 

By age 15, a child should be able to understand the basics of the stock market and they should understand a budget, either through an allowance, or a simple understanding of needs versus wants. Finally, as they become a senior in high school, they should understand a stored-value credit card and the value of charity.

 

 

Finding a Credit Card For Teens

There is no ultimate decider when choosing a credit card for a teenager, but in today’s no-cash world, it’s best to work out a plan of action for your teen. Assuming the thought of their teen having a credit card isn’t too much for a parent, it’s a great first step in teaching financial responsibility.

 

Since the CARD Act of 2009 placed certain limits on how and when teenagers use credit cards, new restrictions are in order. For example, anyone under 21 is going to need a cosigner and/or proof of income. The CARD Act also prohibits agencies that report credit from releasing reports for anyone under 21 unless requested by the individual.

 

3 Options For Teens to Get Credit Access

 

Outside of the CARD Act, there’s really no substitute for teaching a teenager the importance of understanding credit, other than a real life example.

 

  1. Getting added as an authorized user means fewer restrictions for anyone under the age of 18, but this means the primary cardholder is still responsible for the activity of the authorized user. This way, the parent can manage their child’s spending via statements and online banking, but this doesn’t necessarily mean an authorized user will build good credit.
  2. Look into getting a student credit card. If a teenager is 18 and at a college or university, a student credit card is a perfect option. Usually, there’s no annual fee and many provide access to a free credit score. For proof of income, students should look for part-time work or have a co-signer As an example, Citi’s College Card has no annual fee, gives reward points, sends reports to all three credit bureaus but has a high APR rate of 24.74 to 29.99 percent.
  3. Using a secured credit card. For those that are 18, but do not qualify for a student credit card, a secured credit card would be the next best option. This way, they can make a deposit to use the card and it could later become a standard credit card.

 

Since any teen can get a secured card, as it merely requires a cash deposit, the credit limit will generally reflect the amount of the deposit. Secured cards send in credit reports to help teens build credit.

 

One example would be the Discover Secured Card, which has no annual fee and allows for teens to see a free FICO score. After eight months, there are also monthly reviews, but the APR is high and a $200 security deposit is required upfront.

 

With a secured card, a teen can invest their own money onto the card from a summer job, but a parent or guardian can also load a card for the child, so they can start building credit.

 

What to Watch For With Secured Credit Cards

 

While secured credit cards are a great way to help teens or college students start earning credit, there are also risks to watch out for. While there may not be a set up fee or processing fee, it’s possible that a secured card will have an annual fee and likely an initial security deposit.

 

Either way, it’s important to use a credit card responsibly and to look for the attractive perks of the card while dodging any pitfalls. This could include only using the card for one thing, such as gas or groceries. This could also be using the card for one specific item if the card provides rewards for something like restaurants.

 

How do you manage your credit cards?

Any tips or tricks you'd care to share?

 

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