6 Step Plan For How Parents Can Teach Their Children How To Properly Handle Credit Cards

How Parents Can Teach Their Children How To Properly Handle Credit Cards
When I say parents can give credit cards to students, I'm not focusing on students getting credit cards.

I'm focusing on parents taking charge of their children's financial well-being and future. Don't just give it to them, teach them what it is and how to use it properly.

Avoidance is an ineffective response to something that will not be avoided. Waiting, on it's own, will not guarantee a better outcome.

And if our children will eventually end up with credit cards (and they most likely will if the parents have one themselves), then it's much better to be proactive and teach them the right habits.

But how can we do that?

Just giving them a credit card and "winging it" would be fatal (financially speaking). That's no different than just waiting for them to get jobs and get one on their own.

Instead we have to be systematic about it.

1. Teach them how to save

If they have no savings, chances are they'll end up in debt, with or without a credit card.

But teaching them the habit of savings starts when they're very young. Other financial lessons will come much later. At what age would depend on the parents (if they feel the child is ready) or perhaps the situation if such lessons are already warranted.

2. Decide when

It could be in late high school or early- or late-college.

It's mostly up to the parents. In most cases, a mini-mergency fund will resolve a student's emergencies. So giving them a credit card is not a "life-vest" but primarily a lesson to prepare them for their future.

Not all of us can leave behind fortunes for our children. But all of us can give them the tools to grow their finances. This is just one step in making sure they're prepared to do so, ahead of their prime earning years.

3. Have safeguards

  • Get a card with a low credit limit (without an annual fee; or with one that's easily waived). 
  • Enroll it online for easier monitoring. 
  • Have the billing statement sent to the address where you would be able to check it right away.
  • Allot time for monitoring the card (preferably when you go over the family finances yourself)
  • Prepare tasks/errands or situations that would let them use the card responsibly
  • Prepare potential punishments for errant behavior - additional chores, garnishing their allowance, being grounded, etc.
  • Prepare potential rewards - like giving them the card's freebies, letting them enjoy the rebates from the card, or integrating this with any other reward system you may already have (ex: giving them the Christmas or Birthday gift they want; with proper credit card use as just one of the "prerequisites").

4. Set the Terms

Just handing it to them and letting them figure it out won't work. It's important for them to know why they have it, when to use it, and how it can help them.

First of all, as students, they admittedly have very limited opportunities to use it. So it's important they know that it is only for emergency purposes.

For any non-emergency, unapproved expenses, payments will come from their allowance (or cash gifts during birthdays, Christmas, etc. or from part-time/summer jobs if they have any).

But in certain circumstances, it would be possible for parents to foot the bill. For example: when buying project materials, and if it's more convenient for the student to do it rather than the parent. But only if permission was asked and given in advance. If needed, such things can be verified with the school or teacher.

Other terms can be set, what's important is that the guidelines "encourage" them to act responsibly.

Also, it would be good to highlight benefits the card might have, like possible rebates, discounts, or freebies and how to potentially claim these rewards without overspending; to show that credit cards aren't just a spending tool.

And this makes the next step critical.

5. Choose the right card

It's important that parents themselves be able to figure out an appropriate type of credit card for their lifestyle and/or spending habits.

If your biggest expenses are gas, get a card with gas rebates. If most of the budget goes to groceries, find a card with grocery rebates.

Since there are no cards targeted towards students, they can instead have a supplementary card. (Bonus: Some bank don't charge annual fees for supplementary cards.)

6. Monitor

Have them give you the receipts as soon as the purchase is completed. Also make sure to check the account online, to prevent "surprises" on the billing date.

It may seem like prying or not trusting them. But in truth, it's letting them see how credit card management is properly done.

Receipts are there to remind you how much you've spent already. And regularly checking the account online ensures your account isn't getting defrauded. Being proactive also gives you time to address spending problems before the 1 month "grace period" starts; after which usurious interest rates kick in.

In the end, these are just suggestions. How students can be taught proper credit card management may take on different forms. And parents may even wait until their child has a job of their own, though teaching them at that time would have to take a very different approach.

But what's important is to let them know that if used irresponsibly, credit cards have dire consequences; and if used properly, there are advantages to be gained.

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photo credit: liewcf via photopin cc

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