Teach Your Teen Financial Responsibility

One of the most important things you can do for your teenager before he/she leaves home is to teach them basic financial responsibility. If your child can manage their own money, they will build good credit, have a better standard of living, won’t bother you for cash, and will have the freedom to choose their own path upon graduating college without worrying about sinking into the world of credit card debt.

Avoiding Credit Card Debt

Credit card debt is like a financial leg shackle; it follows you wherever you go. Help your teen avoid credit card debt troubles by teaching smart budgeting techniques. Once your child is away from home, they should be able to break down their monthly bills like this:

• cell phone bill ($50)

• car payment ($220)

• insurance ($100)

• rent ($475)

In this example, the student knows they need to set aside $845 each month for necessities. Realizing how much money goes into the basics will help them cut down on the “wants” like video games, trendy clothing, cable, etc. When I was in college, my parents paid the “needs,” and I had to get a job if I was to afford the “wants”. Prioritizing and budgeting the “wants” is important as well. Teach your teen to be realistic about what he/she can afford at the moment. Many companies, such as furniture stores and car dealerships, offer deceiving deals “Pay nothing for 12 months” or “Zero down financing,” which tempt buyers with the ease of credit and instant gratification of purchasing without taking money out of the wallet today. Often times, this leads to high interest rates and payments down the road which the student may have lacked to take into account.

Encourage Credit Building

Staying away from credit card debt and staying away from credit cards are two different things. Do educate your teen about the importance of building good credit. If you need a few pointers, refer to You Think You Don’t Need a Credit Card?, because shying away from credit cards is not the answer. Credit cards provide an unmatched level of convenience. They also help build good credit when used responsibly. And if your child is moving away from home, there is no easier way to wire them money in case of an emergency. Together with your teen, check out our student credit cards and view the options.

Many of our student credit cards feature no annual fees and many offer rewards, cash back, and a low or 0% introductory APR. However, student credit cards usually carry a higher than normal APR due to bad or no credit usually associated with student credit card users. This is where learning to budget becomes important. The ideal situation for a student is to use the credit card like they would cash. Paying the full balance every month establishes credit worthiness and avoids unnecessary payments on interests and defaults.

Teaching your teen financial responsibility is one of life's most important lessons so don't delay it another day!