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Encouraging Heroes. You can be one too.

Time to face the inevitable; your teen is slowly turning into an adult. Well, maybe it doesn’t seem to be ‘slowly’, but the ‘inevitable’ is right at least. And, with this realization comes the adjustments you both will face. Whether they opt to go to college, or dive into the workplace, their life is about to change.

They will soon be responsible for purchasing their own items such as a car, cell phone, and possibly groceries and rent as well. No better time to teach your teen about finances, than now. Actually, the earlier the better, in my opinion.

Part of that teaching should be about credit and its importance in our everyday lives.
First, I am going to share with you the significance of credit. And then, I will share you with some easy tips on helping your child establish their own.

How Credit can Impact Their Life

Perhaps the best place to start is to stress the importance of established and good credit and how bad credit to negatively affect a person. Make sure you let them know that they will not be able to put anything in their name and establish true independence without it.

However, if they find themselves in trouble with late payments or overdrawn accounts, they should know there are ways to get out of debt. It’s not hopeless, if they know how to do it. First step would be to find out what went wrong.

The second step would be to pay off the smallest debt first, so they can apply that amount to another debt. Then repeat with each account until the debt is paid off.

Begin with a Savings Account

Starting with a savings account is a safe choice, mainly because you can open one for them long before they even know what it is. Obviously this would be a joint account with you, but there’s nothing wrong with that.

As soon as they start to earn money, from allowance to baby-sitting fees, encourage them to put at least a portion of these funds into the savings account. This goes a long way in establishing some history for future requests from a bank, such as a checking account…

Open a Checking Account

Soon enough they will be able to have a checking account, at least with you as a co-signer. Work with them in showing how a ledger works and the importance of keeping track of every transaction, and how to balance it.

If they are too young to open one, have them practice with a dummy register. Also, as simple as this sounds, show them how to properly write a check. Payments can be delayed with one simple mistake on a check. I know this, because I’ve done that…once.

When I first started my account, I didn’t have access to an online account, or software programs to act as a register. But, most every bank offers online services. This is great for the main purpose of keeping an eye on the account. You can also make transfers online if you find that account getting down too low.

However, I wouldn’t ‘babysit’ the account too long. They have to learn to do it themselves, even if it means making an error. Sometimes that’s the best way to learn.

Charge It

Another way to build up some credit is to open a credit card, with a small limit of course. Or, a small loan. The idea is to make a purchase with credit small enough so it’s easy to make payments, but large enough that there are payments. Paying it off right away will not establish credit.

Perhaps they need a computer. The payments could be stretched out long enough to make a difference,payments would be reasonable, and it’s a useful item to purchase. However, emphasize the importance of making payments on time.

This might be a good time to let them know just how much poor credit can affect their life. Here are a few examples you can give them:

  • Car. It will be more difficult and costly to buy a car, because the interest rate on the loan will be higher.
  • Cell phone. Carriers might not allow for anything but a prepaid plan, if the credit is poor.
  • Rent. Landlords often check credit before signing a lease and can deny you, or raise the rent accordingly.
  • Job. It might be more difficult to get a job, as more and more employers check credit now before hiring.

If you help them find a credit card or loan, make sure they offer online services. Just as with the checking, this will help you keep track of it. They might even be able to send email alerts for things such as over limit spending and payment due dates.

In Closing

The earlier you can teach your teen about finances, the better. Go through some ‘dry runs’ if you have time before they open an actual account. And again, stress the fact that by not taking care of their finances, it can make a very negative impact on their life.

About the Author:

Melissa Cameron is a freelance writer, who is currently writing a series of articles on helping teens with finances and credit. Her latest series was a result of researching credit matters on www.debtmanagementplans.uk.com. She often writes on various subjects such as health, family, and online business. On her down time, Melsissa loves to spend time with her husband and kids and they enjoy camping, boating, and sporting events.

Editor’s note: as a die-hard Dave Ramsey afficianado, Amy will tell you that it’s best to not get credit cards at all. Teach your child to save up and pay cash for anything they can. They’ll thank you later.