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Even if you decide that your teen is ready for a credit card, your responsibility does not end there. Instead, you still need to take a few steps to ensure that your teen learns to handle credit well:
- Don’t sign your teen up for plastic before they are ready. Your teen should already have had a bank account and an allowance or some regular money for a while before signing up for a credit card. This gives your child or teen some time to learn about money and its management.
- Have a serious financial discussion before applying. Before applying for a credit card with your teen, have a serious discussion about credit cards, responsibility, and money. Remember: credit cards may be simple and obvious to you, but to a teen they may look like free money. Explain the ways that credit cards are responsibilities and explain exactly what will be expected from your teen when he or she has a credit card.
- Set rules for credit card use. Do not simply issue a card to your child. Instead, establish rules for where and when cards can be used. You may wish to set spending limits, for example, and you may want to insist that your child bring you every credit card receipt they get.
- Alert your child to credit card dangers. Many banks and law enforcement agencies will talk to schools or individual teens about credit card frauds and scams. It is crucial that your child stay aware of these dangers, since with a credit card your teen can easily shop online, a place where unscrupulous companies do regularly set up shop.
- Monitor expenses and monthly transactions together. Once a month, go over your teen’s spending and discuss how they feel about their purchases. Ask whether your teen wishes he or she had made different buying decisions. If the answer is yes, talk about what your teen can do next month or next week to shop differently. Also, be sure to show your teen how to compare a statement with receipts to look for errors or potential problems
- Be sure your child understands credit. If your teen’s card has overdraft protection, your teen can charge slightly more than they have deposited. Even this small amount can quickly turn into debt. Be sure to explain to your teen the dangers of debt and work with your child to find ways to avoid this common credit card pitfall.
If you decide to go ahead and give your teen a credit card, be sure that you help your child understand and use the card correctly. For many busy families, teen credit cards are a great convenience and the beginning of teen money management skills. With a few precautions, there is no reason why credit cards can’t serve the same function in your own household.