TEENS & CREDIT
One of the biggest
problems kids face when they go to
college is a lack of financial
knowledge. Most parents will send
their child off to school with a
brand new checking account, credit
card and/or debit card. Parents
think that just because their child
is prepared academically, that they
how to use and manage their
finances wisely. Unfortunately this
is not the case.
It is very important that you
educate your child about financial
responsibility as best as you can.
Below are some tips that will help
you achieve this.
Checking Accounts
When opening your child's first
checking account, do not sign up
for
overdraft protection.
Although it may seem like tough
love, there are some very
powerful lessons to be learned
by means of bounced checks and
fees associated with such. Learn
more about
checking accounts.
Credit Cards
Before you grant your child the
use of a credit card, lessons must
be taught and guidelines must be
established. You must make it clear
to your child that if they abuse
the credit card, that they are
going to lose use of the credit
card.
Set strong rules about using the
card. For example, you may want to
limit credit card use for
'emergencies' only. However, adults
and children have very different
interpretations of what an
emergency is. That being said, it
may be a good idea for your child
to begin their credit card
experience by using a secured
credit card. A secured credit card
will only allow money to be spent
that has been placed in the credit
card account. Meaning, there is no
revolving credit line to be use.
Therefore, a secured credit card
will eliminate the possibility of
spending money that they do not
have, thus falling into debt.
Wired Plastic™ + Rewards Stored
Value MasterCard® is our
choice for a secured card.
If you decide to allow use of a
regular credit card for your child,
teach them about credit card
balances. Make it clear to them
that it is very important that they
pay-off their credit card balance,
in full, on time, every month. A
credit card is a great means of
building credit. However, a credit
card is also easy to use abuse.
Falling into debt via a credit card
will hurt your child's credit
severely. The
Orchard Bank Mastercard® is our
choice for a credit card for
building credit.
We feature two calculators that
depict the impact of credit card
debt. A good idea would be for you
to have your child try both of
these calculators:
1)
Credit Card Interest Calculator
- Lets you determine how much
interest you will pay for your
credit card debt.
2)
Pay-Off Goal Credit Card Calculator
- Figure out how much you will need
to pay for your credit card debt
every month if you want to
eliminate your debt by a certain
time.
Bailing Your Child Out
No matter how hard you try and
teach your children to be fiscally
responsible, there is still a
strong likelihood that your child
is going to fall into debt. Should
you help your child out if they get
in over their head? This decision
is going to be up to you. Your
child may learn a valuable lesson
as a result of having to pay off
the debt that they have
inadvertently incurred. However,
there is the chance that by the
time your child starts to take
control and responsibility of their
debt, that the damage is
irreversible. Therefore, it may be
the responsibility of the parent to
step-in before it is too late. No
matter what your final decision is,
a learning experience for your
child can come out of it.
*** Once your child starts
utilizing credit,
getting a copy of their credit
report regularly is very
important. You can learn more about
credit reports and
how age plays a factor in your
ability to obtain credit and loans.
**
Auto Saving Tips! - Learn
how to save while driving, from
buying a car,
purchasing auto insurance,
buying gas to
commuting!
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