Credit cards are a very useful tool, and just like fire, they can be a good servant or turn out to be a very bad master. It all depends on how you wield them. Parents may have qualms about letting their teens have credit cards. However, this is one of the best ways to encourage your teen to be responsible, and it’ll also help them to build excellent credit in the long run. Here’s what you need to tell your teen about credit cards…
1. Always Pay Your Bill in Full… and on Time!
This is the MOST IMPORTANT rule of the lot and so many adults get it wrong too. You’ll need to ingrain this point into your teen until they truly understand that credit cards are not cash. Show them how the interest rates work and how much they’ll be paying over and above what they have spent. This will be a wake-up call for them.
2. The Credit Card Company Is NOT Your Friend
Very often, card issuers act like they’re looking out for the teens by providing perks, discounts, etc. There’s an insidious and vested interest here. The card issuers and banks are hoping the teen defaults on payments or racks up too much debt. Then the old ‘pay the minimum’ cycle kicks in and the teen pays interest for years without being able to get out of the debt cycle. Your teen must understand that when a credit card company offers them a card in the mail, they’ve not been ‘selected’ because they’re special. They have been targeted. It’s very important they understand this.
3. Don’t Succumb to Peer Pressure
When one is young, status symbols seem to be the be-all and end-all of looking cool. A nice car, designer clothes… and the latest trendy credit card might make a teen feel ‘successful’. If your teen wants a credit card because everyone else has one, do NOT let them have one. The reason for wanting one is wrong and they’ll misuse it. Educate your teen about how the masses are in financial servitude because they owe massive credit card debt.
4. Not Everything Is As It Seems
It may seem like having a high credit limit is the goal. Whenever you watch TV shows about the rich and famous, they always seem to have exclusive credit cards with a limit so high that you can put a jet on them. That’s because most of these wealthy people can afford to pay their bills. Even then, many still end up bankrupt when times get hard. There are countless stories of wealthy folk who had their properties and possessions repossessed by the banks when they couldn’t pay up. If the banks could go after these high flyers, you can bet they’ll come after you and it’s imperative that your teenager understands this. The ‘grace period’ offered by the credit card issuer is an illusion here. It’s a siren song luring the unwary to a watery grave of debt. When paying your bills, forget the grace period. It’s of no use to you. You always want to pay in full and on time, EVERY SINGLE TIME. If you do this, you’ll stay out of debt, have all the convenience of a credit card, and also build excellent credit.
5. Remember This Mantra
Repeat this mantra to your teen, “If you can’t pay for it with cash, you can’t afford it.” People often make the mistake of buying products using monthly installments… or they think about paying the minimum and splitting the cost over a few months, etc. All these mental gymnastics doesn’t change one fact just because you can make the monthly payments does not mean that you can afford the purchase. You’re better off saving up and buying whatever you want.
6. Shop Around
A credit card is like a contract. It has terms that you’ll need to abide by. Discuss the different credit cards’ terms with your teen and find a card with perks and favorable terms they like. Choosing your card based on research will be far better than applying for a card that randomly shows up in your mailbox.
7. Other Pointers to Note
You’ll want to tell your teen to protect their identity and be wary when shopping online. There are lots of cases of identity theft and even one-time passwords are forwarded with scams, etc. If purchasing online, make sure they know to use a secure payment processor and not to divulge their credit card details carelessly. Teach your teen to check their credit score to know how they’re performing, and also encourage them to get a part-time job. This added income will give them more flexibility when spending and they’ll be able to pay off their credit card bills without relying on their parents. Spend time with your teen and explain all these points well before letting them get a credit card. This will prevent them from racking up debt that they may end up paying. Follow the pointers in this article and your teen will have a better understanding of credit cards than their peers… and will avoid the financial quagmire that traps so many credit card users.