Wednesday, September 7, 2011

3 Ways To Teach Your Children How To Use A Credit Card

Credit cardsImage via WikipediaAs parents it's our job to teach our children all they need to know about life. When they are young we teach them take care of their belongings and their home. As they enter school we teach them the importance of studying. We teach them morals and respect for others. We spend years going over and over again teaching and preaching so they will become responsible well rounded adults. Overall we do a pretty good job but one thing we don't do to well is teaching them to handle money and debt.

We usually begin teaching our children about money and use cash as a tool to teach about working and being paid for it. As they get older, we have them open a checking and savings account to keep their money they receive as gifts. Later they get jobs and need to write checks. If your like me it stops there. I tell my kids a checking and savings account is all they need while they are in college. They want to get credit cards too but I say, that can wait till later. Being on a cash basis is enough for the time being.

I like them being on a cash basis because it's hard to get into to much trouble that way. But I know eventually the credit card will enter their life eventually. I would like to teach and prepare them for that inevitable day. Because it will probably happen when they are on their own and I can't be their to guide them.

Teaching them the proper way to use a credit card is the best gift you can give them. With credit cards the the ways to get into trouble are numerable. If you want to give them some hands on training with credit cards, lets try one with the training wheels on first.

Use a Parents Credit Card.

All you have to do is call your credit card company and have your student be an authorized user on your card, with all the same privileges you have. Before handing it over to them make sure you lay down all the ground rules. Designate when the card should be used and if permission is required before each use. Discuss what kinds of items or services the card is to be used for.

This will actually demonstrate to the student the mechanics of how to use the card and for what reasons are appropriate. They will learn from this experience that the card is only for a specific purpose and can not be used for just any reason. It's the safest way to get a card into their hands but not cut the apron strings just yet.

The downside is they do not see the other side to credit cards, paying them off every month when the bill comes in.

Sign up for a student credit card.

The sign up rules for student cards are a little easier when they apply because credit card companies know student have little or no income. If they can be approved for the card on their own credit rating is always better. Never co-sign for their first card or any other credit application. You would be totally responsible if the student refused to pay the bill.

Almost half of all college students have a card of their own. Only 36% of students carry a balance from month to month, says Student Monitor, a market-research firm, but the average balance this year rose 35%, to $695, from 2010. Also many cards offer a reward system which could encourage more spending. Remember interest rates for student cards are usually higher.

With the student credit card, both sides of the process are able to be experienced, the credit card use and the receiving of the monthly statement. If they are responsible, they will grow an appreciation of the interest charges and how much of their money goes to pay it. The downside is they could run the card to it's limit and pay heavy fees for not paying on time or going over the limit.

Use a prepaid card.

A prepaid card is the best of both worlds. Here the student can not over spend and get into serious debt. Only money deposited on the card can be used to charge purchases. It's the reverse of the average credit card where you charge first and then pay the bill. A prepaid card makes you pay first when you load the card and then later use the card till the money is gone. Here a secondary lesson of budgeting your money has to occur or the student will have used up all their money before it can be refilled again.

In a prepaid card you have the smart way to teach the credit card lessons, it's almost like the real credit card. It's a safe way to get the job done. It will work overall but when a unforeseen incident happens and a larger expense needs to be paid, the prepaid card will not be able to cover it immediately.

You must decide the proper use of the credit card with your child. Will it be for everyday expenses or is it for that unexpected emergency. Remember good communication throughout the process is key. Use this experience to teach the benefits
 and problems associated with credit cards. Most importantly teach them it's OK to not have a credit card and that they can function just fine only using cash.




2 comments:

  1. I think its a good idea for students and kids to have a credit card, since knowing HOW to responsibly use one is a very important skill for adulthood. I know someone who, thoughout college, had a credit card with a $500 credit limit. She learned to use a credit card, but her ability to "get over her head" was limited.

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  2. This is an excellent post. I think the problem with our society and credit cards is that we don't teach our kids what they mean, how to use them, and what its for. And, we wait until they are 18 and then give them a credit card and say here you go. No, that's not the way it should be.

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