In a world where credit is king, it seems that teens as young as 18 now have their own credit cards. Helping your teen get approved for their first credit card is a huge milestone, one that if not managed properly can ruin their financial future.
As a parent, it’s your job to teach them the right way to use their credit responsibly. Here’s what you need to know about teaching your teen to manage credit wisely.
Be the Example
If you’re going to talk the talk, you need to walk the walk. Be the example you want your teen to follow and manage your credit card responsibly. Make sure you don’t go over your available limit and try to pay off your monthly balance in full. Show them how you track the use and balances of your credit cards.
Explain the Process
Not knowing how credit cards work is one of the biggest dangers when you have them. Far too often, we’re approved for credit, go shopping and never really think about how the interest rate can affect us. Once approved for a card, explain how the process works, showing your teen the actual way interest is calculated and how it can affect their monthly payment. You should also explain how important it is to pay on the bill on time, even if it’s just the minimum balance due.
Talk About Credit Scores
Teens also need to understand the importance of their credit score. They also need to understand how paying their credit card on time can boost their credit score, whereas not paying on time can lower it. Having a high credit score takes time and responsible spending habits that accrue over time. However, a good credit score is becoming more and more important in our world, even for things as simple as renting an apartment. Make sure your kids know how to build good credit for when they need it.
Demonstrate Good Spending Habits
Finally, you need to demonstrate good spending habits. When buying something expensive, plan ahead and talk about how you’re budgeting prior to final purchase. Even if it’s not for something expensive, it’s still a good idea to exhibit good spending habits. That means showing your teen how to create a financial budget for recurring monthly expenses.
As a parent, you’ve watched your teen go from a newborn who relied on you for everything to now a teen entering young adulthood. Although it might not seem like it, your teen still needs you to help them find their way. Being a teen is tough but with your help, your teen will learn how to prepare for their financial future.