Teach Your Teen Fiscal Responsibility: 4 Essentials
You may think that giving your teen a credit card will help them learn how to handle credit responsibly, but according to money expert Dave Ramsey, over 80 percent of college seniors are bogged down with credit-card debt before they even graduate. Helping your teens secure a credit card can be a valuable part of teaching them financial skills, but several other steps should be taken to support effective money management.
Set an Example
Many kids grow up without a strong concept of where their parents’ money comes from, how much of it there is or how it’s spent. It’s only natural to think money is in infinite supply when you grow up having all your financial needs met by someone else. Educate your teens about the family budget and they’ll get a reality check on what it costs to maintain a household. Help them to understand the damage that large credit card payments can do to your real-life, limited, budget. If you have credit card debt yourself, don’t hide it from your teens. Use your experience to teach them the ramifications of debt.
Start Saving Early
Even young children will benefit from the habit of automatically putting a percentage of their money into savings. If your kids get just one or two dollars a week in allowance, require that a percentage of that go into a piggy bank or other savings account. When they start earning their own money a portion of their checks should also go into savings. Finance expert and author Jean Chatzky believes that not only should teens start working part-time by the age of 14 or 15, but putting some money into savings should be a condition of keeping their job.
Identity Protection
Javelin Strategy Research reports that 1 in 25 Americans are victims of identity theft and unfortunately the statistic isn’t surprising once you learn that identity theft is a 37 billion-dollar crime. Teens may be most vulnerable while shopping on or surfing the Web. Teach them not to give out personal information, especially on public wireless connections like at the coffee shop or mall. Lifelock warns against sharing personal information in places like the doctor’s office or any business where others might overhear and stresses the importance of shredding sensitive documents to protect against “dumpster diving” thieves. Another option is to invest in an identity theft protection service. ID protection services can prevent fraud from happening and alert you to suspicious activity before it becomes a problem.
Secured Credit
Once your teen understands the rules of money management she may be ready for their own credit card, but help their succeed by giving their “training wheels.” A secured credit card requires the holder to maintain a cash account with the issuer that’s equivalent to the credit amount. With this method their purchases can’t be greater than the cash amount. If they fail to pay, the card issuer will take payment from the linked account and your teen won’t run up hundreds of dollars in interest charges. However, failure to pay would still be harmful to their credit record. Learning to use a credit card with training wheels will show your teenager how quickly interest and late charges can add up and how important it is to use the privilege of credit responsibly.
Financial responsibility isn’t learned all at once, and sometimes mistakes are made along the way. As a parent you can help your teen limit their mistakes by educating them about money management from an early age. If we don’t teach our children about the consequences and burden of debt we can’t expect them to handle their budget wisely in the real world.
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Category: Family Finances, Financial Education
