My daughter is 15 -- much too young to get her first real credit card. I remember being 19 when I got my first retail store credit card, but rules have changed a lot since then, and most kids are waiting until 21 to open their first charge accounts. That doesn't mean, however, that I can put off the job of approaching the topic of credit with my daughter until later; it's actually never too early to start training in this area. Here are the basic lessons that I think all tweens and teens should grasp in preparation for when they are old enough to secure their own credit.
1. There are many kinds of credit accounts. If you ask most kids, they will identify plastic as the official form of credit. While credit cards are usually some of the most commonly used ways to borrow money, most young adults will secure credit in their own names in the forms of school or car loans far before they will get their first department store card. Talking to your kids about the various types of credit (including some of the more treacherous types: payday advance and pawn loans) will ensure they have the knowledge they need to choose the right kind of credit down the road.
2. You can't just abandon credit accounts. I grew up in a generation where bankruptcy was frowned upon. After I was an adult with accounts of my own, however, I watched many friends and relatives act irresponsibly with their credit and look to bankruptcy as a way to "wipe it clean." Much has changed since these days, and now, it's almost impossible to just walk away from your obligations with a bankruptcy filing. Teaching kids about their obligations, and how they can follow you through life, is a must. So is explaining how settlements, judgement and garnishments can affect your chances of financial success.
3. If you can't afford it now, you won't likely be able to later. This is not to mean that you can't build wealth and earn more as time goes on. This is simply to state that borrowing money for when you will have more is a misguided approach toward finance. Young people often underestimate things like inflation, emergency spending, and earning power, leaving them unrealistic about how much money they will have "left over" from a paycheck. Teaching them to wait until they have the money in hand is a valuable lesson that can carry them through some rough spots in their adult years.
4. When you grow up, your parents are there to be an encouragement, not to support you. I know some parents can afford to buy cars, cells phones, and even first homes for their kids. Others pay for tuition for a higher education. With 5 kids, this likely won't be the scenario for me, and the sooner I let my kids know this, the better. By setting realistic expectations of how we can help in those first years of adulthood, I can ensure that my kids save and budget for the things that are most important. My daughter already has a self-funded car account and a college savings fund. She uses a prepaid debit card to spend her own money on items like gifts and extra clothing. She knows that she is responsible for her own financial success, but that we are here to give guidance, advice, and to cheer her on in her goals.
I remember taking a financial education class in high school. We learned the proper way to write out checks and how to calculate compound interest. I didn't learn the lessons discussed above, however, and I suffered as a result. As parents, we have a duty to make sure we fill in the gaps in our children's education. Won't you take a moment to go over the important lessons with your teen or tween?
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