Credit cards: teach your child how to use them responsibly


Teaching your children about credit cards is as important as teaching them manners, proper work ethics or explaining the effects of using drugs and alcohol – all of these will help them grow into responsible adults.

It’s always a good idea to lead by example and not fall into the debt trap that takes you years to repay.

Many teens are excited at the prospect of getting a credit card, albeit often for the wrong reasons. Battle their misconceptions early and they will learn how to use credit cards properly, thus avoiding creating situations that are difficult to get out of. If you feel that you do not know enough to properly educate your child on credit cards, get informed first. Luckily, there is plenty of information online to educate yourself about this topic.

Before you teach your teenager about credit cards, credit scores and credit reports, make sure they know the basics of money management. Let them spend their own money they get from allowance, birthday gifts, part-time job or from chores to get the feeling of how money works. You might also let them borrow some money from you and pay you back with interest to educate them about loans.

Below are a few important lessons your children should learn about credit cards:

  1. It’s not your money. It is by far the most important concept your child needs to grasp when it comes to credit cards – when they use a credit card, they are essentially borrowing money instead of spending their own. This money needs to be paid back and the bank that issued the credit card will charge an interest. It is a good practice to pay off the outstanding credit card balance every month to avoid it from piling up as the longer it takes to pay the money back, the more interest the bank is going to charge.
  2. There’s a limit to what you can purchase on a credit card. Each credit card has a limit assigned to it. This limit is a maximum amount a card holder is allowed to charge every month. Warn your child against making big purchases on a credit card as they are more difficult to pay off and might have a negative impact on their credit history. Keeping their credit card spend below 30% of the credit limit is ideal and helps build good credit scores.  Teach your child how to properly calculate the amount of creating they can use by multiplying the credit limit by .30.


  3. Don’t rely on your credit card. Your child should understand that the proper way to handle money is not to spend more than one makes. Every purchase, trip or any other payment that goes beyond the amount they make will put them into debt. Therefore, it’s important they understand that using their checking account where they have the money they already earned is the right way to go. While using credits cards on a regular basis and timely paying off the outstanding balance is a good practice and will help build a good credit score, credit cards need to be used with caution. Credit and debit cards look very similar and it’s easy to get confused, so it’s important your kids know the difference.
  4. Don’t miss payments. Kids often take for granted the amount of patience their parents or other relatives have for them and might be led to believe everyone will behave the same. Make sure your children know this will not be the case and businesses will not be as forgiving, especially when it comes to money.

Your child needs to understand that the creditors will not limit themselves to giving a polite call if a payment is missing but they will charge interest, send letters and let other creditors know about credit card misuse. Eventually, they will close the account and sue for the outstanding amount, no matter how big or small it is.

If you have co-signed on a credit card with your kids, they need to understand that credit card misuse will damage your credit score. And, that like the creditors, you won’t be patient and will close the account if they miss payments or go over the limit.

  1. Credit card mistakes will follow you for years to come. Credit card mistakes are hard to fix, and even when fixed, they can follow up for years to come. Explain to your child that the choices they make today might have repercussions in the future. Employers check credit reports, so do car dealers, landlords and credit institutions. Bad credit card use will influence your child’s credit score, which in turn will make it much more difficult to get credit, buy a car or rent an apartment in the future.

Credit cards might seem insignificant, but they do provide a wealth of information to a lot of people/institutions and this information might not be used to your child’s advantage if they do not master proper credit card use habits.

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