Most of us remember the TGIF show “Step by Step”, but do you remember the episode that JT receives a credit card and despite a warning from Frank, he charges $20,000 worth of stuff, including a mink coat which Carol adores. When everything is returned Carol has a hard time parting with the coat. Frank puts the next credit card JT gets in the blender. That episode aired in 1994, which was over 16 years ago. Teen credit card debt was an issue then and an issue now.
It’s no secret that American adult’s today have issues with using credit cards responsibly. We see the mess that the irresponsible ones got us in a couple of years ago and hope that they’ve learned something. But a sad fact is these adults that can’t use their cards the right way are teaching our next generation about financial responsibility.
If you find yourself in this situation, here are some lessons to cover.
Credit cards are a Loan
Credit cards are not a gift from the bank and should not be used to spend money on anything you want. Set spending limits for your teen and hold them to it. Teach them that they should never spend more in a month than they can pay back. Another thing that my Dad taught me was “never use your credit card for something that is intangible.”
Credit cards come with a price
Teens need to understand that if you don’t pay your bill, you get charged fees. Nowadays you can get a 0% APR credit card for up to 21 months in some cases, but those are usually reserved for the excellent credit individuals. So more than likely, your teen is going to have an APR that hovers between 15 – 25%. Do your homework on credit cards and find the best one for the long term.
Don’t trust the hype
Banks are going to do anything they can to get your teen to apply for their credit card. Yes it might be nice to have a cool design or add your photo to the card, but remember banks are in it to make money. And they will do whatever it takes to get in your wallet. Just be glad the issuers have to stay away from the college campuses.
Don’t get careless with your future
Having a credit card is a privilege and should be treated that way. Making sure you start your life with a good credit score is important to you and your future family. These days everyone pulls your credit when you want something. Buying a new house get ready for the utility company, Phone Company, Cable Company, etc. to all pull your credit. Applying for a new job? Yes, they will even pull your credit. If your teen spends carelessly and gets themselves in a credit score hole, it’s not going to be a positive thing for anyone involved.
Credit cards can be a great thing for teenagers. Capital One, Citibank, and Discover all have good credit cards that will help them on the path to financial freedom. However, I think it’s your job as a parent or mentor to teach them to be responsible and respect the plastic in their wallet or purse.