Credit Lessons for Teenagers
Teenagers and Debt
Charles Schwab recently published a study about the money attitudes of youth ages 16-25. It's hard to believe that the Great Recession was ten years ago, but in that time period youth have been influenced in important ways pertaining to money and financial habits.
Two key takeaways:
1. Parents are talking to kids about money - and kids WANT to learn!
2. Teenagers are fuzzy about the fundamentals of debt. Specifically, it's unclear to them that a mortgage could help build long-term value in an asset like real estate, in contrast to the long-term implications of credit card debt.
3 ways to teach high schoolers about credit
As a parent, I want to be the first person my kids come to with their most important questions about everything - including money. In order to create a safe space for kids to ask questions, we need to be willing to share enough about our finances to make them comfortable asking us first.
1. Talk about your credit card decisions with your teen, and help them understand your strategy in using the cards.
Growing up I remember watching my mom pay the Chase credit card bill every month, and as a child I actually looked forward to reviewing the Chase Rewards catalog. My parents explained many times that although they used a credit card and enjoyed the rewards and convenience, they never bought something if they could not afford to pay for it immediately. They were diligent about paying the bill every month. Naturally I adopted their strategy when I opened my first credit card in college. Invest the time and effort to explain what your credit card payments look like, and discuss what approach you take when using credit.
2. Sit down with your teenager and go over your personal credit report.
Kids need to understand the importance of a credit report and see what a report looks like, as well as understand credit scores. Sit down with your teenager annually and show them how to pull a credit report from annualcreditreport.com. If you have made some mistakes, explain those to your teenager and help them understand what you wish you would have done differently. Over time this practice will provide a broader picture of how many small decisions influence a credit score.
3. Add your high schooler as an authorized user on a credit card account you're comfortable giving them access to.
Help your child practice using a credit card by adding them as an authorized user on an account. Allowing your child to be an authorized user will enable them to use a credit card and begin building credit while you remain the primary account holder ultimately responsible for the charges. Every month review the statement with your child and discuss the trade-off's of the purchases made as well as those purchases not made.
These small steps will likely pay dividends when your child is greeted with their first credit card offer at college orientation. Having these conversations at home helps prepare them to handle these situations with wisdom and confidence.