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Teaching Kids Financial Responsibility Tips
Credit cards can teach children how to manage and establish credit records which help out later in life when they are trying to buy homes.And also teaches them financial responsibility. Some parents think giving their child a credit card is a straight shot into debt.
As you probably know credit card companies have aimed heavy marketing towards kids in college for some time now. Now these same companies have moved on to the younger and less responsible consumers. Focusing on juniors and seniors in high school. They have done this because of research and surveys that say 31.3 million U.S. teens are working and spending their own earnings along with plenty of money from their parents How much of their own money are they spending? In 2006 teens spent $195 billion. All of their own money. That number is up from the 1999 figure of $94 billion.
So it is no surprise that credit card companies are marketing co-signed credit cards to high school kids. The offers they get through the mail allow credit limits as low as $200. Granted the cards do offer parents low level protection but they also come with high interest rates. Since parents co-sign they are held legally responsible for the account.
Prepaid Credit Cards
Another option for teens and parents to consider is prepaid credit cards. Parents apply for a prepaid credit card in the child's name and deposit money into the account. The prepaid cards can be used anywhere Visa or MasterCard are accepted. They also come with extra features like online account control and tools, financial lessons and interactive games designed to teach fiscal responsibility.
This is better for parents because they have a way to track what the child is spending money on and have the option to reload the account when it is low online using a checking account. It is good for teens because they are not allowed to over spend the account and rake in finance charges, other fees and overall debt.
How To Handle Your Child Using Credit Or Prepaid Credit Cards
Whichever option you choose to use with your child when trying to teach them financial responsibility there are a few guidelines to consider.
- Be clear about what your child can and can't use the card for.
- Teach children to use their credit card only for things they would be willing to pay for with cash.
- Track transactions and balances in the register and do not forget to include debit card or ATM fees.
- Collect all sales receipts to prevent a thief from using the information to make purchases.
- go over monthly statements with your kids and monitor their spending habits.
- Sit down with your children and show them what fees and interest can cost over time.