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Teaching Children to Handle Credit Cards

kid credit cardCredit cards can be a great convenience for both college students and their parents. They reduce the need to carry cash; enable students to purchase books, clothing, and other incidentals; and provide a ready source for emergency funds. There is another advantage ― students who handle their credit cards responsibly have a head start on establishing a good credit history.

However, young adults can’t always be counted on to exercise caution when it comes to spending money. And a virtual blank check, in the form of a student’s own credit card or authorized use on your card, can often be an irresistible temptation. For a student using a parent’s card, the risk may come in the form of a hefty unexpected bill that cuts into monthly cash flow or reserves. But for a student with his/her own card, the risks are even more far reaching; over-limit fees, late fees, and missed payments that can damage the student’s credit rating.

So what’s a parent to do? While you probably can’t stop your college student from getting a credit card, you can help teach him/her to use that card responsibly. Consider the following tips to help your child manage credit responsibly:

  • Help your child select a credit card. Try to convince your child to use a debit card instead of a credit card, so he/she won’t get into debt. If your child insists on using a credit card, go through several offers with him/her, comparing interest rates, annual fees, grace periods, and penalties.
  • Explain the basics of credit card debt. Make sure your child understands that not paying the balance in full every month can result in a significant amount of interest. Low minimum payments mean it may take yours to pay off credit card balances. Try to instill the concept of paying credit card balances in full every month.
  • Urge your child to only use credit cards for necessities, not to fund luxuries. Credit cards can be used for items like book purchases and car repairs, but they should be avoided for clothing, dining out, and entertainment, unless your child can pay the balance in full every month.
  • Go over your child’s credit card statement every month. Show your child how to compare receipts to credit card statements. Go over all purchases and explain how credit cards can increase impulse purchases.

Copyright © Integrated Concepts 2013. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed, but should not be regarded as a complete analysis of these subjects. The appropriate professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.

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