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How to teach your teenager about credit cards

Credit cards and teenager’s don’t always mix but showing them the ropes can always help.

A credit card is a powerful financial tool. Adults appreciate that power but also understand the dangers involved in credit card use.

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Because parents are acutely aware of those dangers, most are reluctant to allow their teenagers to begin using credit cards.

The problem with this approach is that a young person who has absolutely no experience using credit may abuse a credit card when he/she turns 18 and can legally obtain one.

Fortunately, there are ways to begin teaching your teenager about credit card use while limiting the financial risk. Here are four great ways to help young people learn how to handle credit.

Start with prepaid cards

1. Start your child with a prepaid card. This is a card that you load with a sum of money (not actually a credit card) that can then be used for purchases.

When the original amount is exhausted, you reload the card. This provides your teenager with the experience of using plastic for purchases without the risk associated with credit cards.

Show and tell

Before you introduce your teenager to credit card use, show him or her a monthly statement. Point out the important pieces of information like the balance, interest rate, minimum payment, and the payment due date.

Emphasise that it is advisable to pay off the balance every month, and explain the consequences of carrying a large balance.

teach your teenager about credit cards

Add them to your card

Name your teenager as an ‘authorised user’ of your credit card. The advantage of this arrangement is that you can easily monitor their credit card use.

A drawback is that your teenager can ring up large purchases (within the card’s credit limit) and you are ultimately responsible for repaying the amounts.

If you choose this option, it’s a good idea to make clear ground rules at the beginning. Set a maximum amount per purchase and/or per month, and provide a deadline for your son or daughter’s monthly contribution to your payment.

Co-sign

Co-sign for a credit card in your teenager’s name. If you choose this option, it’s a good idea to require that the card have a low credit limit (perhaps £300).

Also, make sure that your child understands the consequences of irresponsible handling of the card — that your credit record will be damaged.

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