By Rebecca Lindsey, CardRatings.com Staff Writer
Ahhh, school days. Reading, writing, and rooting for your school football team. Hanging out at the mall and surfing the web. Ok, so things have changed a little since you were in school. The current generation of teenagers now has more purchasing power than ever, and companies are spending millions of dollars to get your teen to pay attention to their products.
If you're like most American families, your teenager has some sort of income, be it an allowance or a job. The problem: how do you teach your child about money, before they "invest" it all into the current fad? Believe it or not, the solution may be a credit card.
Once upon a time, giving a teenager a credit card was laughable, if not impossible. However, now there are several cards available just for teens. Options such as parental control and digital allowances serve to let parents participate in their teen's initial journey through the world of credit. Although the thought of your teenager with a credit card in their back pocket might cause you to break into a cold sweat, there are some good reasons why this could be a great educational experience for your child, as well as yourself.
Money Management 101 The sooner your teen learns about the reality of credit, the better. Teach your teen basic lessons about how credit works, including how interest rates can quickly double or even triple the original price of an item. Rather than giving your teen free reign to purchase anything he or she wants, help your teen establish a budget and a sense of financial responsibility.
Another good source is Citibank's Credit-Ed program, where teens can see how good they are at credit management, budgeting and more.
Foundations for Good Credit By providing your teen with early money management skills, you set them up for an easy transition into the world of adult credit. A recent survey of adults sponsored by the InCharge Institute of America highlights the need for education. About half of the respondents claim that they were never taught about credit by their parents. When teens leave home for college or work, they will be bombarded with credit card offers.
Incoming freshmen are expected to amass an average $1,500 in credit
card debt according to Nellie Mae, the largest non-profit provider of education loan funds in the U.S.
(more info here).
A sound knowledge of credit will make your teen aware of the potential pitfalls of "too good to resist" credit offers. An early start can also help your teen to establish good credit, giving him or her countless advantages when they're on their own looking to purchase a car or a house.
Security Another advantage is the feeling of security you have in knowing that your teen has a back up in emergency situations.
Using plastic is also safer than using cash.
Furthermore, in the event that your teen's card is lost or stolen, you'll pay nothing for unauthorized purchases.
Options
There are many card options available to teens.
During the summer of 2001, Visa introduced a new product geared toward teens that is called the
Visa Buxx card. The Buxx card has sparked a great deal of discussion and debate about the merits of allowing teens access to electronic forms of payment. The card is basically a prepaid debit card, according to Michelle Singletary, a personal finance writer with the Washington Post. Visa has embarked on a marketing campaign to promote the Buxx card and bills the card as a "parent-controlled reloadable payment card". The card is already being issued by many large banks and may come with an annual fee and transaction fees. Fees vary from bank to bank. Please
note that this card will not help your teen establish credit.
Another option for parents that have a higher risk tolerance level is to co-sign for
a low-limit unsecured credit card (aka a "real credit card").
If you are brave enough to choose this option, make sure you limit your
risk by asking for a very low limit on the card, such as a $200 to $300 limit.
Please bear in mind that this option will affect your credit rating.
Should you decide that it's time to teach your child the golden rules about credit, you will want to investigate the types of cards available.
You can find the best rated credit cards by visiting the "Card Reports" section of CardRatings.com.
A little research will help you match your teen with a card that meets his - and your- needs. With thorough research and responsible teaching, you can make your teen's entrance into the financial world smooth, fun, and successful. Go team!
Other Resources:
Teens can take this brief interactive quiz
to see just how "credit savvy" they really are.
The purpose of the Jump$tart Coalition for Personal Financial Literacy
is to evaluate the financial literacy of young adults; develop, disseminate, and encourage the use of standards for grades K-12; and promote the teaching of personal finance.
CardRatings.com is proud to actively participate in Jump$tart's financial literacy initiatives.
Click here for more credit education articles!
Please visit our "Card Reports" section to review our
current ratings of credit cards for college students.
Want more related information? Learn more about student credit issues by reading our articles entitled Student Credit Card Debt: A Survival Guide, and
Student Credit Cards 101- A Student's Guide to Credit.
Comsumer Tips on Dealing with Debt- Free Teleseminar/Webinar
Rebecca Lindsey is a Senior Staff Writer for CardRatings.com. She began writing
articles about consumer credit issues for CardRatings.com in September 2000.
Originally Posted September, 2001- Updated May, 2006
Important Note! The information in this article is believed to be accurate as of the date that the article
was written. Please keep in mind, though, that
credit card offers and terms change frequently. Therefore, we can not
guarantee the accuracy of the information in this article. Please verify
all terms and conditions of any credit card offer prior to applying.
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