Teenagers have become the number one target of credit card companies. More than 80 percent of graduating college students are already in some kind of credit card debt, and in 2008, 19 percent of people who filed for bankruptcy were college students. It's no secret that we live in a nation where debt is an acceptable part of life, but teenagers are particularly vulnerable to the temptation of living off credit.
Financial Responsibility Starts Early
Parents bear the responsibility of teaching their kids about credit before it's too late. Just like the awkward "Where do babies come from" speech, your kids should know something about credit long before they actually need to know about it. Without guidance, a teen is very likely to think of credit as free money, which is definitely not the case. You may not need to provide your teen with an actual credit card to teach them financial responsibility. Explaining that credit is not money -- it's only debt -- can warn teens early that our culture glamorizes material things and advertisements, but that doesn't mean it's the right thing to do. You can begin teaching your child these lessons early in life, and his financial values will likely be ingrained by the time he gets his hands on his first credit card.
Teenagers and the Hidden Costs of Credit Cards
If a teen is under 18, they'll need a parent to co-sign with them to get a credit card. If you've decided that you're willing to do this, the first thing you should think about are the card fees and credit limit. Most teens may not know about interest rates, late fees, minimum payments, finance charges and fees. The interest rate alone can quickly make the minimum monthly payment unaffordable, which is not something a teenager is likely to consider while they're spending.
Debit and Prepaid Cards
As an alternative to credit, teens should consider using a debit or prepaid card. An unsecured credit card allows teens to rack up debt, whereas a debit card is linked to actual cash in a bank account. And prepaid cards are also backed by actual cash, where the user just pays up front and then uses the card like a savings account they have to replenish. If you are a parent, you may want to stress the difference between cash-backed cards and unsecured credit.
Parental Guidance and Supervision
Once a parent has co-signed on a credit card, you may want to monitor spending. As part of the agreement for you co-signing, perhaps ask to see the card statements every few months to see how the card is being used and how it's being paid off. As a co-signer, being made aware of card activity is a good idea like checking up with the card company to make sure the credit limit isn't raised without your knowledge, or keeping track of a teen's spending habits and credit limit can help keep them out of any serious debt.
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