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Credit Cards and Teens Don't Always Mix

Francine L. Huff
LoanBiz Columnist

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About a third of high school seniors have credit cards, but that doesn't mean they actually understand basic money management principles, according to Young Americans Center for Financial Education. While credit card companies have made it easy for teens to get credit, it's important for parents to help them evaluate whether or not they're ready for their own card.

Many Teens Lack Financial Knowledge

Only 45% of teens surveyed by Charles Schwab in 2007 said they knew how to use a credit card, while only 26% said they understood how credit card interest and fees work. To determine whether their teen is mature enough for a credit card, parents should ask the following three questions.

  1. Can the Teen Follow a Budget?

Handling credit and debt wisely must involve setting up and sticking with a monthly budget. Many schools don't offer any personal finance classes so it's up to parents to sit down with their kids and help them learn to budget and save their money. Helping kids open a checking account, write checks, balance the account, and use a debit card responsibly can prepare them for the big league of credit cards. They earlier parents start financial tutoring the better. Any teen who doesn't understand basic budgeting techniques is likely to mismanage credit cards.

  1. Does the Teen Have an Income?

Although many parents co-sign for their kids' credit cards, this isn't always the best way to teach them financial responsibility. While this can help a teen establish a credit history, it may not help them to set spending limits and goals if parents don't give them some responsibility for helping to pay the bills. Teens with credit cards in their names should always review their monthly statements and be involved with repaying the balance. If a teen is old enough to have a credit card, she's old enough to have a part-time job or work around the house to earn money.

  1. Should a Teen Get Secured Credit Card?

Parents might want to consider a secured credit card if they're unsure about giving their teenager a credit card. Secured credit cards require a cash deposit, which in turn becomes the amount of the credit line for that account. In other words, by depositing $300 into an account, a teen could charge up to $300. Using such an account can allow teens to get their feet wet in the world of credit without too much risk. As they become more responsible, the amount of the credit line can be increased.

No one obtains good financial skills by osmosis. Teens who learn budgeting and other financial skills will have a better chance of handling credit and debt responsibly in the long run.

Sources
Young Americans Center for Financial Education
Charles Schwab


About the Author
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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