How to Prepare Your Child to use a Credit Card

*Originally published on 6/7/10


Credit cards are great. They're safer than carrying around a lot of cash, they're convenient, and as odd as it sounds, they're just fun to use at times. The "buy now, pay later" mantra has a lot of appeal for good reason. It's great to be able to pick up something and not have to worry about paying for it for another few weeks. The downside is that it is very easy to lose control and put yourself in a bad financial situation.

This is especially the case with teenagers who are just getting their first taste of credit. Without having a full understanding of how credit cards work, it would be very easy for a young man or woman to go out on a spree and not realize the damage they're doing.

It sounds obvious to point out to your kids that you still have to pay the bill, but it's so easy to just hand the card over and not even worry about it. This is especially true with small purchases. You may think that ten dollars here and there for things like gas and food don't matter all that much, but they pile on quickly. When your teenager does get a credit card, make sure that they keep track of their purchases. Just leaving well enough alone will result in massive bills. If the teen is aware of how much the transactions are adding up, he or she will be less hesitant to use it on a very regular basis.

One thing that helped me personally was the fact that I started with a debit card. Most banks offer them with checking accounts now. They operate in the same capacity as a credit card, but your account is billed directly. This can act as, for lack of a better term, a set of training wheels for someone who has never had access to a credit card before. They will have the freedom to shop and purchase things while seeing the repercussions of each purchase reflected on their bank statement.

By using a debit card first, they will have trained themselves to use a card responsibly before they even get a credit card. In the long term this will help them out a great deal as they will be less likely to tear through credit the same way others do.

Make sure you instill the idea of paying each bill in full every month in your child's brain. That minimum payment is tempting as it's usually not very high. It would be easy for a teenager to put off paying the bill, thinking that they'll pay off the balance later.

Limit your teen to just one card when they are just starting off. Applying for cards en masse does major damage to your credit score and it makes it more difficult to be fiscally responsible. With just one card comes one bill, which is quite manageable at that age. Also, most cards start off with a low credit limit, ensuring that your teenager doesn't go crazy buying high end items.

Helping your teenager build good credit is helpful as it lets them build good spending habits. It also gives them a solid base to build upon over the years which will make things easier for them down the line. Credit cards grant a lot of freedom and power to those who have them, but it's important to live up to the responsibility that comes with that.