Your teens probably think that they know everything and also likely tell you so daily. However, it’s a safe bet your kids haven’t learned all they need to know about a vitally important topic: credit. Here’s what you need to make sure your teenagers understand about credit.
They’re Probably Not Learning About Credit at School…or Home
A recent NextGen study found that only 1 in 6 high school students are required to take any classes on personal finance in the U.S. Combine that with the two thirds of parents uncomfortable with “the money talk” that T. Rowe Price found in their survey and you’ve got a dangerous recipe for credit ignorance.
Why is it so hard to talk about money with our kids? It may be partly because parents aren’t confident in their own financial situation. When 4 in 10 adults can’t find the resources to pay a $400 bill it’s understandable that it can be hard to teach lessons that haven’t been learnt. If you don’t want your children to repeat some of the same mistakes you did, the single best thing you can do is buck up and have an honest conversation about credit and money.
Credit Lessons Teens May Need to Unlearn
Once you dig in, you may find that even teens who learned about credit in school may have info that is either incomplete or just plain wrong. While teaching kids not to spend more than they earn is a good thing, some financial literacy programs go too far in the other direction with scare tactics about irresponsible debt.
For instance, my high schooler learned that having more than one or two lines of credit was dangerous, which is patently untrue. Carrying balances on high interest credit cards is dangerous, but having a couple of credit cards you pay monthly plus a low interest loan on a car that gets you to work or class can be a responsible choice.
Jump Start Your Teen’s Credit Journey with Authorized User Cards
One way to give your kids credit with training wheels is to give them authorized user card from one of your existing credit card accounts. By doing so, your kids can get a jumpstart on building good credit by allowing them to inherit the history of your account. However, if you miss a payment or have high utilization on that account, your child will inherit that negative information as well, so make sure that you have a good hold on your credit before you try to help your kid out in this way.
If you actually give the card to your child for their use, keep in mind that you’re on the hook for every charge they make, so be sure you’re comfortable with your teen’s level of self-discipline. The last thing you need is hundreds of dollars in bills because your kid decided to buy pizza for the entire track team.
Debit Cards Are Important, Too
You might also want to think about which debit cards are most suited for your teen. A joint checking account with a debit card could be the most convenient way for you to help your teen manage their finances as you can deposit funds your kid can access right away.
However, you need to make sure that your teen understands that when the checking account is empty, the debit card stops working. A debit card might look like a credit card, but it definitely does not function as one in a pinch.
You can’t rely on high school to teach your teen about credit. You have to step up and take charge so your kids are ready and able to responsibly use credit cards and other types of credit as they move into their adult lives.
Credit is a tool, like any other. Used to build a house, a hammer is effective and harmless. Used incorrectly, that same hammer can be deadly. Credit used responsibly can help build a successful future, or improperly used can destroy one.
Source: Dia Adams, Forbes Article