For 21st century teens, credit cards have become a rite of passage like cell phones and drivers’ licenses. Kids are quickly becoming one of the largest target markets for credit card companies, with more and more youth culture campaigns popping up each year. That’s because credit card companies know that teenagers are consumers, forming one of the largest population demographics in the country and spending upwards of $200 billion annually.
The good news is that more people are realizing the importance of educating today’s youth about financial responsibility.
It’s important that teens understand how to live within the constraints of their financial realities. Parents should talk to their children about the difference between needs and wants and the concept of delayed gratification. It’s important to emphasize living within your means, and never charging more than you can pay off at any given time. That means that credit cards should be used only as a supplement to cash, not as a substitute.
Starting your teen off with a prepaid credit card has the potential to help your child gain valuable experience with important financial concepts without all of the risks. No matter what kind of plastic first falls into your child’s hands, however, there must be a healthy balance between parental involvement and teenage independence.
An allowance is a great opportunity to introduce your child to the world of money, while keeping it relevant to their life. It’s important to make a correlation between money and value, relating your kids’ new-found funds to something real by giving an allowance as payment for a task completed such as taking out the trash or simply keeping the bedroom clean.
It’s important to provide your child with the time and space to ask questions and to answer some, too.
Kids need to have a good payment record as opposed to having a record of debt. A good payment record does not necessarily mean a credit card; it can be anything from a cell phone bill to a car insurance statement. What’s most important is that teenagers understand enough about building credit to know what will hurt their credit, but they don’t need to be actively and purposefully ‘building’ their credit. More importantly, teenagers should know the crucial difference between credit, which is the amount of money you have available ‘on loan’ and debt, which is the amount of money you owe.