Teaching Teens to Use Credit Wisely

When I was a freshman in college, I walked out of my English class and noticed a booth that was giving away free t-shirts. In order to get a “free” t-shirt, all I had to do was apply for a credit card. I never had a credit card before and this free shirt was too cool to pass up.

Little did I know: That shirt was about to cost me $2,500, or whatever my credit limit was.

I knew nothing about credit, and the minute the card arrived in my mailbox at the dormitory, I was hooked. Not only had they given me a free shirt … they also gave me all this money. Suckers!

You know how this story goes. The shirt wasn’t free. And neither was the money. It turns out that this money came with something I hadn’t thought of before: interest. Turns out the sucker may have been me.

The last thing we want is for our kids to end up with a mountain of debt. It’s important for teens to learn early about how to use credit wisely, to understand what responsible credit looks like and how and when they should begin building credit of their own.

Try starting with a debit card

A good introduction to credit cards is a debit card. With a debit card, your teen begins to learn how to pay with a card, but the money is already in the bank. They have to learn to check their balance and that they are only able to pay with what they actually have, which is a good rule to live by, even when paying with credit.

Consider adding them as an authorized user.

If you want your teen to start building their credit, but don’t really feel they are ready to be on their own with a credit card, consider making them an authorized user on a card you share. You will want to cap the credit on the card and be sure your teen understands his or her limits. When the bill comes each month, share information with your teen about the interest accrued and when the payment is due. It also is a good idea to have your teen pay the bill with their money so they begin to understand the importance of making payments and making them on time.

Should your teen build a credit history?

As with anything, education is key. Teens need to understand money management and responsibility. The reason people should use credit cards, if at all, is to build credit for future big purchases, such as cars and mortgages. Lenders want to see a history of responsible credit usage, and teens need to understand that.

How much credit is enough?

For teens, $1,000 is plenty to start with. This will teach them responsibility, but not give them the opportunity to get in too much debt.

When it comes to money, start the conversations early and don’t be afraid to keep having them. Talk to your kids about what it means to be financially responsible. And if you have a cautionary tale like mine — don’t be embarrassed to share it! We learn from our mistakes, and sometimes others can learn from our mistakes, too.