Teaching Teenagers about Credit Cards

To the average American teenager, a credit card equals free money. We know this isn’t the case but unfortunately, when teenagers realize this, it is often too late.

There’s no denying credit cards make everyone’s life easier, including teenagers. You can use them everywhere from the cinemas to ebay.com, from the video game store to concerttickets.com. However, if you are not responsible with your credit card, there is a chance you will be paying more interest than you ever need to. This especially goes for teenagers who often don’t have a high enough income to support their free-spending habits.

However, there are some things you can do to teach your teens about credit card management before there are in over their heads.

First, give them a credit card. This sounds contradictory but it’s not. The best way to learn is through experience. Let them experience a credit card first hand, when they are still teenagers and living at home. This will teach them how to spend responsibly earlier so they understand the demands of a credit card when they are out on their own, at college or at their first full-time job.

However, don’t hand over your platinum card just yet. Instead, start them off with a low-limit credit card. Low-limit credit cards are catered to teenagers as young as 15. While parents are the co-signers, your teenager is in charge of the card and the payments. However, the credit card limits are much lower ($300-$1000) so they cannot get too far in debt.

Teenagers, like all of us, learn better with first-hand experience. Let them see for themselves and learn through their experiences, both good and bad.

If they do get into some trouble, don’t completely bail them out. Let them work off their debt. Sooner or later they are going to have to understand the benefit of hard work. Why not start them off now?

Another option for teaching teenagers about credit cards is a pre-paid Visa or MasterCard. Many companies make these now. You or your teen can load up the credit card with as much money as you want and they only have this money to spend. These cards work everywhere credit cards are accepted and act as the training wheels to a standard credit card. However, it’s a good idea to let them put in their own money rather than re-filling the card whenever they run out. Let them learn how to budget the money they have rather than relying on you.

Low-budget credit cards and pre-paid credit cards are great ways to teach teenagers about the limitations of owning a credit card. Furthermore, letting them experience credit cards when they are young will teach them how to buy responsibly when they are older.

Write to Julie Williams at julie@creditdonkey.com