The thought of giving credit card to your teenager may scare you at first, but honestly, it is one of the best ways to teach them about how credit works. Teaching about credit is like teaching your teen how to drive, but in a much more controlled environment. But similar to how you cannot just let your teen hop into car and drive, we cannot give them a card on their own someday without teaching some things beforehand.
But this is precisely what so many people are doing out there. Teens consider the card as some sort of gift card or other stored-value card and may end up in a vicious circle of debt, if they spend more than they can afford to repay.
Building a good credit score has become a necessity nowadays, because at some point in life your child will have to borrow money. Making wise use of a credit card in the college years can help teach your child a lot about managing his/her finances and build a great credit history. These can be helpful in influencing your ability to get a job, an apartment, or good car insurance rates.
The procedure for getting a card for your teen
If your teen is already using debit cards, prepaid cards and making purchases with your credit information, then the time is right for you to teach your child about credit. The best way to teach them about credit is to add them as an authorized user to your own credit card account. You can keep tab on their activity and it will also benefit your own credit score. Though, be aware that you are solely responsible for making repayments even on your child’s behalf.
First, limit the usage of card to things that you were going to buy anyway such as gas, or movies. If they have a job, then ask them to pay for repayment as well. Get text alerts service on your phone so you are aware of all the transactions that take place on your credit card, by this you will prevent your child from falling into bad debt.
Some alternate ways to introduce the concept of credit
If you don’t think your teen is ready for a credit card, then initiate the credit teaching by starting with a prepaid debit card. Set some ground rules like limit the types of purchases the card can be used for, how long the funds on the card should last, and what criteria would cause you to revoke the prepaid card.
A regular debit card can do just fine and it can serve as a transition tool to a prepaid card and then a credit card. You may even give the child his or her own savings account where they can save money given by you and the money they earn from daily errands or a job.
But eventually, you would want to add them as an authorized user to your account. The right time is before your child is eligible to go for a credit card on his/her own.
By educating your teen about credit and credit cards, you can prevent them for getting into so much trouble that people usually fall in.