The problem with teaching the teens in your household to manage their finances responsibly is that you may not precisely be the best person to do so. Many adults were never taught themselves how to budget, save, and spend wisely. And this is especially true when it comes to using credit cards. But when the young adults in your home are ready to learn these important life lessons before they head out into the world on their own, it’s probably high time you learned a few yourself. And here are some basics concerning credit card spending that anyone, young or old, can benefit from, and that you should definitely pass along to your teenagers.
First and foremost, it’s important to get a credit card with the lowest possible interest rate, and this may require a little legwork. Teens generally have no credit to speak of, which leaves you in the unenviable position of co-opening an account with them so that they can build credit. But there is another way. If your teens have bank accounts, they can use their money as collateral to open secured credit cards through their banking institution. They simply provide a check for the amount of credit offered (generally a limit of about $500), which the bank will hold for a year in the event that charges are made but not paid. If your teens spend wisely and pay off their secured cards every month, they’ll get their collateral back at the end of the year (with interest) and end up with more credit card offers than they know what to do with, many with excellent interest rates.
Of course, this is a good time for you to talk to your teens about the difference between cash and credit, because it’s easy to conflate the two when credit spends just as easy as cash. However, your teens need to understand that credit is actually debt, not an asset. And every time they swipe their credit cards, they’re taking out a loan that they have to pay back with interest. So if they know they can’t pay off those new shoes or concert tickets when the credit card bill shows up in the mail, they need to be prepared for the fact that they could end up paying significantly more for every purchase.
Just because they buy concert tickets for $200 doesn’t mean they won’t end up paying $300, $400, or more by the time they’ve paid down the debt, just for example. So they shouldn’t take on a higher credit limit or more cards than they can reasonably afford to pay (avoiding temptation) and they should pay their bill in full every month if at all possible. If they don’t have a good grasp of this concept, sit down and do the math, showing them how much extra they’ll pay for a purchase, with their interest rate, if they pay it off over a year in specific increments. That should drive the point home.
Of course, there are definitely credit card tips that can provide your teens with solid strategies to build their credit rating and implement appropriate credit card spending habits. For example, they could use a card only for certain purchases like car costs and travel. This way they’ll spend every month, they can reasonably expect to pay off their expenditures, and they’ll build their credit in the meantime. Or they could assign one bill (like a phone bill or car loan payment) to be automatically paid by credit card, after which they’ll pay off the card. One thing is certain: if you don’t take the time to teach your teens how to spend wisely, they’re almost sure to have some hard lessons ahead of them, and they could end up ruining their credit or landing in bankruptcy court as a result. So take the time to learn if you need to and teach the teenagers in your home how to use credit cards appropriately.