Tips for Teaching Kids About Credit Cards

By NYMetroParents Staff March 29, 2013

Learn tips for teaching your kids and teens about credit cards and financial responsibility. Kids today are using their parents' credit cards for purchasing smart phone and iPhone apps without knowing the consequences of credit card spending and debt. Jeff Hindenach offers advice for explaining credit cards to kids, from credit card debt, to responsible spending, and teaching your children how to budget their finances at an early age.

It’s a simple fact: Parents do not like talking to their kids about money. In fact, over 60 percent of parents surveyed said they would rather talk to their kids about sex than about money. This could be why so many of those children turned into adults that don’t know how to handle a credit card, which is why this country is $793 billion in credit card debt.

This is why we should be teaching our kids about how to use credit cards, not how to abuse them. So what’s the best way to teach your kids about credit cards? We have some advice that we think will help:

Be your kids’ own personal credit card: Yes, this sounds like every parent’s nightmare, but if done correctly, it can teach your kids a valuable lesson. Make a deal with them that if they want something, you will buy it for them, but they have to pay your back within a month. If they don’t, you’ll add a quarter to what they owe for every month they are late. This will teach them how credit cards work and also the importance of paying off your balance every month.

Add your teen to your credit card: Yes, 13 sounds really young for your kid to have a credit card, but trust us, it will help them in the long run. It will give them a head start on building a solid credit portfolio, which will make it easier for them to buy a car or rent an apartment in the future. The best way to do this is to add your teenager to a credit card you already have in your name. Just make sure it is one with a low limit, so they aren’t tempted to run up a huge bill on your card. It might even be a good idea to apply for a new card and cap the credit limit at $500. Constantly check your account online to monitor your kids spending, and sit down with them every month to go over the bill. Remember, you are putting a lot of trust in your child. If they charge more to the card than you can pay off, it might end up hurting your credit as well as theirs.

Get them their own credit card: You’ve taught them all you can and now it’s time for the baby consumer bird to leave its credit nest. On their 18^th birthday, help them choose a credit card to apply for. (Note: Some of the student credit cards require you to be enrolled in college to apply.) You should do this for two reasons. One, the sooner the can start building their own credit portfolio, the higher their score will be and the easier it will be for them to get loans, credit cards, etc. in the future. Two, if you have them apply for a credit card while they are still in high school, chances are that the credit card company will want you to co-sign on the card, unless your child has a source of income. This way, you will still be able to monitor their spending, even when they are away at college.

For young adults in college, we recommend the Discover it card for Students. It offers a zero percent APR on purchases during the first 6 months as well as five percent cash back rewards on select categories and one percent back on everything else, which are great rewards for a student card.

Jeff Hindenach started his career as a journalist for the San Jose Mercury News and the San Francisco Examiner. He is currently an Editor with NextAdvisor.com, a leading consumer and small business information web site. He specializes in credit monitoring, legal services and security software.