What to Teach Your Adult Kid About Their First Credit Card
The college years are a
time of growth and change - both for you and your child. One significant
difference that occurs for your child is taking on responsibility of managing their own finances. That is, if they have never done it before.
It's tempting to use
credit cards to buy things on impulse or pay off debts with high interest
rates. Thus, it'll cause some serious problems down the line.
The worse is, your teen
might face financial troubles when they graduate or even before they work
full-time.
Benefits of Getting Your Kid a Credit Card
Some parents feel that
giving their children a credit card is a terrible idea. But, there are benefits
to allowing your child to receive one.
In this article, we'll
examine some of the best reasons to give your child a credit card.
Discussing credit cards
with your child is crucial. Educating them about proper use can instill an
excellent worth ethic and responsibility.
Many kids and teens look
forward to getting a credit card, but often for the wrong reasons. Teach your
kids the proper ways to use a credit card, and they'll be more likely to stay
out of financial trouble.
Kids should learn that
credit cards can be helpful if they use them correctly. Also, people should
recognize the risks of irresponsible credit card use.
Excessive credit card
use can leave them vulnerable to financial ruin. Here are some tips to help you
teach your child about credit cards.
It Helps Build Credit History
The most common reason
parents give their children a first credit card is so they can build credit.
Helping your kid establish a credit rating is a good thing.
It is a crucial step but
not the most important. Only 15% of a credit score is determined by how long
someone has been using credit. More important is their payment history. Credit
bureaus will check if they pay their bills on time.
Sadly, young people who
get cards in their teens or college years may end up damaging their credit
scores. It can happen if they use the cards irresponsibly.
If you're trying to help
your kids build credit with a credit card, make sure they learn what credit
means. Also, teach them how to build good financial habits.
They Learn Healthy Spending Habits at an Early Age
Letting your child get a
credit card will mold them to have good credit habits. That way, your child
will carry a healthy attitude
Overwhelming debt is a
result of repeated impulse purchases. As a parent, it is vital to set an
excellent example for your children.
Help them distinguish
between needs and wants. Teach them about immediate gratification and delayed
gratification. Knowing these things will help them keep out of trouble.
Sit with your child
before adding them as an authorized user. Afterwards, set some guidelines
together. Every month, go over your child's purchases together and remind
him/her to pay those purchases in full.
It Makes Them More Responsible
In letting your child
pay for their purchases, they get a sense of responsibility. Getting a handle
on their finances from a young age will make them more responsible.
For your children to
become financially ready later on, you need to teach them this value.
6 Lessons Your Kid Should Learn About Credit Cards
Establish a Monthly Budget
You could have your
child figure out what costs they expect each month. It includes money spent at
cafes, concerts, and other amenities.
Rather than taking
advantage of the cards' credit limits, your kid should base their budgets on
the income they get from their jobs or allowance.
Tell your kid to stick
to small purchases. They should only get things they could afford to buy. They
should be able to pay the entire balance every month with their allowance.
Check Balances Regularly
Every card has its apps
nowadays. Tell your kid to download the card's app. Kids should learn to visit
the site or app of their credit card company at least once a week. This way, it
can help them keep track of their spending and spot any suspicious charges.
Repay the Balance Each Month in Full
Teach your teen this
rule every month: pay off his credit card balance in full every month. Having a
credit card balance means paying interest on every purchase.
A balance on your credit
card can make your purchase more costly. Tell your teenager the pros and cons
of setting up a payment plan with the bank. Subscribing to such plans will
charge you either the minimum or the total amount owed.
But if your bank account
balance appears to be too low, the automatic payment gets withdrawn. Thus, it
can cause your account to incur overdraft fees.
Stay Within Your Limits
People don't even know
about the fact that charging more than 20% of your available credit hurts your
rating. A $500 credit limit on that new card means your teen should keep the
monthly charges at $100 or less.
Never let your kids max
out their credit cards. They may not even be aware that their monthly balance
is being reported to the credit bureaus before paying your bill.
A maxed-out card will
result in your credit score plummeting if the credit bureau finds out.
Pay Your Bills on Time
Your teen might not care
now, but their credit history will follow them once they leave college. Young
people need to know this upfront to begin to build credit during their college
years. Having a good credit rating while in school makes it easier to qualify
for a loan after graduation and rent an apartment.
Keep Your Credit Card and Financial Information Secure
Always remind your kids
to be careful with their credit card details and financial information. If
you're going to dump them, tear them up and throw them away. Some people can
take advantage of you and open a credit card in your name.
You'd be at risk if
someone hacked your information and took out loans or opened credit cards in
your name. The situation might get resolved, but it can take a long time and
cause many headaches.
To protect your information,
you should choose strong passwords. Shred any mail offers you get for credit
cards.
With all these laid up
tips, your teen will grow with a sense of responsibility and stronger
self-discipline. Even if they take a loan from Cash Mart, known as trusted Moneylender Jurong,
they can manage to keep up with their finances in a healthy way.
Don't wait for them to suffer in terms of money. As much as possible, teach them these lessons enthusiastically, and watch who they become in the future.
