Teaching Teens about Credit Cards

The average undergraduate carries a credit balance of $2,200 (according to Nellie Mae - the federal loan issuer). Adults on average carry about a $9,000 balance and only pay off 16% of that every month at rates of 18% and higher.

Creditors consider their best customers as those who leave a revolving balance. What better place to find them than on college campuses. If you don't teach your child about the fundamentals of credit and debt, he will find out the hard way! Your child's journey through the world of credit could be a daunting experience, but with a little bit of guidance from you, he can be at ease using these powerful tools.

There are several ways to provide your teen with a credit card. You can add him to your existing account, you can open a separate credit account, you can obtain a pre-paid card, or you can co-sign a card for him. With any of these scenarios, your teenager needs to understand the rules and expectations you have for him when using the credit card. This is one of the most powerful financial lessons he will have during his fiscal education.

Consider starting your child with a prepaid credit card (or secured card.) It is also good idea to go with your child to the bank to set up the account and have him deposit his money in the account that he will be charging against. This will serve as an excellent learning tool. If he uses his own money he is more likely to learn about the value of using the card.

Once your child is older you may consider co-signing for a card so that she can begin to build her own credit history.

Keep in mind that just because your child understands the fundamentals of money management does not mean that she won't succumb to the lure of buying on credit. Advertisers spend billions of dollars each year trying to convince us that we "must have" more than we can afford.

Teach your child good credit management tips:

• Only buy within your budget.
• Save all receipts.
• Match receipts with actual transactions by accessing the credit card statement online weekly to ensure all transactions are correct. (Often the companies name who charges the credit card is different from the name of the store the item was purchased. Comparing the exact dollar amount will help you determine if the charge is correct.)
• Pay those bills on time!
• If you need to roll over a balance, make sure that you write down a plan to pay it off in a short period of time.
• Choose credit cards that charge a low monthly interest payment.
• Beware of credit cards that lure you with gimmicks or give-aways.
• Always read the fine print.
• Save all old credit card statements in one easy to access place.
• Once a month, compare your statement to your actual budget and make adjustments.

Page 3 of 6: Managing Credit and Debt

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