You wouldn’t let your teenager cruise around solo before he’s had some driving lessons, would you? It’s pretty obvious that the responsibility of driving is something that requires education, practice, and time.
But many parents are allowing their teens to take on another important responsibility without the benefit of an education. Specifically, many young people get their first credit card without any idea of how to manage it. This can have disastrous results.
Rather than letting your teenager navigate the potentially treacherous waters of credit by himself, start providing him with age-appropriate lessons early on.
Here’s how to help prepare your teen for the responsibility of owning a credit card:
For Young Teens and Those Who Need More Structure
Getting a prepaid debit card for your child can be a good first step in helping them to understand credit. The upside of a prepaid card is that it makes it impossible for the child to get into trouble — once the money is depleted, the card is declined.
In addition, this can be a good way to introduce young teens (those under 15) to the intricacies of non-cash budgeting. Since many banks won’t offer checking accounts to kids under a certain age, this is another way to help kids figure out how to budget their allowance (which you load onto their card).
One downside to prepaid cards is the number of fees for maintenance and usage. Be sure to shop around to find the best prepaid card. All of them have some fees, but there are many that keep them reasonable.
For Teens with Jobs
Opening a checking account is an important step to financial maturity, and one that teens can handle with their parents’ help. Many banks offer student or minor accounts that have lower fees than their grown-up counterparts.
When your teen opens his account, he’ll learn how to deposit paychecks, balance his checkbook, and maintain a necessary balance. When you feel that he’s ready for the responsibility, you can add a debit card to the checking account, which will again give him an opportunity to learn how to pay, budget, and handle non-cash transactions without leaving him vulnerable.
Depending on your child, you may want to be a co-signer on their checking account, or you may want him to go it alone. While being a co-signer gives you more oversight on what’s happening with the account, it also makes you ultimately responsible for any fees he accrues.
For Older Teens and College Students
Once your teenager has proven himself capable of handling a prepaid card and a checking account, he’s ready to move on to a credit card. Until he turns 21, he can’t get a card on his own without either a co-signer or proof of income, so you can either open a joint card with him, or you can add him as an authorized user to your credit card.
Having him as an authorized user does less to build his credit history, and it also means that you’re responsible for the credit card bill. A joint account means that you’re equally responsible for the charges — and it’ll help him to establish his credit.
The Bottom Line
Learning how to responsibly use credit is not always an easy process. Many people find that they need to make mistakes and learn from them before they truly understand what to do. You can make that learning curve shorter (and less painful) for your teen by introducing the skills associated with credit cards over several years.
How have you helped your teens learn about credit cards?
Btw, there's a pretty nifty tool that motivates your kids to do chores. It's called MyJobChart.com. With a free account, they can earn points for finishing jobs you assign them, good towards free merchandise. Give it a try. It's completely free!