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Debt: What to Teach Your Teens About Credit Cards Before They Have One

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In a lot of ways, your teenagers are pretty darn remarkable. They are responsible and careful drivers who have even been known to fill the gas tank now and then without your asking first. They hold down part-time jobs at the neighborhood grocery store. Their grades are pretty good and they have a nice core group of friends, some of whom they’ve even known since kindergarten. They are looking forward to heading to college and have started the application process.

So, with all of these admirable aspirations and attributions in mind, why is the thought of handing them a Visa or MasterCard with their own name on it so frightening?

Actually, it’s smart on your part to be cautious with your kiddos’ first credit cards. Teens do have a tendency to let money slip through their fingers and if it’s shiny and pretty plastic “money,” it might be especially tempting for them to use a credit card more than they should. With this in mind, just as you didn’t just hand your teens the keys to the car before teaching them to drive, you should definitely take some precausions before signing your teens up for their first credit cards.

Explain Exactly How Credit Works

Although your teens might have a general idea of how credit cards work, it’s up to you to explain the topic in some detail. Talk about how a credit card is not free money, but is actually just a way to buy things now that you have to pay for later. Visit The Calculator Site website together and play with the online debt calculator. Show your teens how using a credit card with a 15.99 percent interest rate can turn a $400 new smartphone into one that costs more than $452—if they pay around $25 a month for 19 months in a row. Show them in black and white how a purchase that might seem like a good deal quickly gets more expensive due to interest rates. This is an important lesson to learn before signing up for a first account.

Discuss the Do’s and Don’ts

Your teens might roll their eyes a bit at this lesson, but don’t let that stop you from explaining exactly what a credit card can and should be used to buy. Let them know that it’s okay to use it to replace a flat tire for their car, but not to go on a shopping spree at the mall. While they might pay for some school-related gear like books and walking shoes, they should avoid using it to pay for pizza and lattes. Refer back to the interest rate lesson and point out that it would be really crummy to spend five or six months paying off a bunch of meals they already enjoyed. You may want to explain the difference in kinds of debt—student loans or a mortgage is less detrimental than credit card debt.

Talk about Credit Ratings

Unfortunately, your teen might regale you with a tale or two about “some dude” he or she knows who used a credit card, got into trouble with it, and either declared bankruptcy or just stopped paying on it. This is actually a great segue into your own lesson about credit ratings, FICO scores and the importance of safeguarding their good name. Let your teens know that the way they spend now will influence the way they are allowed to spend later, and if they go nuts with their Visa and don’t pay their bills in time, it will translate into a low FICO score which will impact their ability to buy a car, purchase a home someday or even qualify for a new cellphone plan. Also emphasize the importance of keeping their credit card number and other personal data safe at all times, and consider a subscription to a credit monitoring service to keep electronic tabs on your teens’ personal information just in case their information falls into the wrong hands.

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