A major issue teens have to deal with once they go to college is a lack of financial smarts. They find themselves away at school with a credit card and a new checking account with no knowledge of how to responsibly use either one.
Unfortunately, it is very common for parents to assume that their children know how to manage money and deal with finances just because they are smart academically. Parents need to educate their children about money management and fiscal responsibility. Featured are some insightful ideas that will help accomplish this.
Prior to giving your child their first credit card, not only do you need to teach them proper credit card use, strict guidelines and rules for them to follow must be established. The most important message to convey is that the credit card will be taken away the instant it is abused. Another important ‘rule’ to consider is that the card be used for emergency purposes only. It is important to note that teens and adults have vastly varying versions of what is classifiable as an emergency. Therefore, introducing your child to a secured credit card first may be a good idea. The advantage of this type of credit card is that it is not a revolving line of credit. The only money that can be spent is the money that has been placed in the account. A secured card will remove the chances of your child falling into debt as a result of spending money that they do not have.
If you choose to grant your child regular use of a credit card, you need to educate them about balances. Let them know the importance of paying the debt on time, in full every month. The consequences and impact of not paying credit card bills should also be explained. Specifically the cost of interest as well as the damage that can occur to their credit as a result of irresponsible bill management.
When used wisely, a credit card is an excellent means of establishing credit. On the contrary, a credit card is also very easy to misuse. Credit card debt will hurt your child's credit; putting them in a financial rut that will cost them a great deal of money, taking them years to get out of.
A checking account is another means for teaching children about fiscal responsibility. However, do not enroll them in overdraft protection. Even though this may seem mean, there are many valuable lessons that can be learned as a result of bouncing checks.
Bailing Your Child Out of Trouble
It is very likely that child is going to develop debt no matter how intensely you attempt to educate them to be financially responsible. Should you look to assist your kid in the event that they get into a financial rut that is too hard for them too handle? You will need to proceed at your own discretion. It is very likely that your child will learn a significant lesson by having to deal with their own debt. However, even if your child does regain control by developing a budget and payment plan for eliminating their debt, the damage may be already done and beyond repair. Therefore, you may have to step in before their situation gets to that point. Regardless of what your final choice is, your child should gain some sort of learning experience from the incident.
*** Once your child starts utilizing credit, it is important that they get a copy of their credit report at least once a year. Learn more about credit reports .
Jacob Joseph is a financial expert for http://www.starloanservices.com . At Star Loan Services you can learn more about managing money .