As your children turn into teenagers, it’s necessary to start to discuss the specifics of finances. More particularly, you need to give them a clear understanding of what a credit card is and how to use it effectively. Here are three easy ideas that you can implement to help your children better understand how credit cards work.
1- Start With a Secured Credit Card
For those who are unfamiliar, a secured credit card acts much like a debit card. You pay $500, and that’s the limit set on the card. You can charge up to the limit, but not over. The card must be paid off before the money is available again.
Secured credit cards help to provide a safe way for your children to understand the basics of a credit card. This introduces a credit limit that your children can easily learn that they can’t go over. These cards allow for a secured online account where your child can learn to manage their card details and make payments towards their balance.
2- Get Them a Debit Card
Starting your child off with a debit card can be a great way to ease them into how credit cards work. Similar to a secured credit card, their debit card can only use the money that is invested in their account. This gives your child access to their online account, where they can deposit money and check their spending history.
You can disable the overdraft feature on your child’s debit card to ensure that they don’t go over their balance. This is a great way to teach them about credit card limits. A debit card is also a great way to allow your child the responsibility of having a chargeable card without having to worry about them charging endlessly while you’re not looking.
3- Upgrade to an Authorized User Credit Card
Once your child has discovered the basics of using a debit or secured credit card, it’s time to upgrade them to their own credit card. However, you should add them as an authorized user onto your existing credit card. This offers many benefits.
First, you can keep an eye on everything that they’re buying. Second, you can set your own maximum credit line for their account. For example, you can start them off with a $500 credit limit. As they show you that they’re able to be a responsible credit card user, you can up their credit limit to $1,000. When they’re an authorized user on your credit card account, you can help to better manage their spending so that you can curb any major problems before they happen.
In this day and age, the perception of how credit cards work is not overly clear with the younger generations. As a parent, it’s your duty to explain finances and credit card usage to your children. As with everything, there are always some simple ways to give them a bit of freedom to learn while still being able to protect them from making major blunders. By following the teaching ideas we went over above, your children will be set up to fully understand how credit cards work.