Junior Wants A Credit Card…What Do You Do?

The surest way to sound personal finance in your twenties is to learn how to manage your money before you need to. And if you’re a parent, you can help your children become wealthy even if you’re not.

Although this site is mostly dedicated to readers in their twenties looking to better manage their finances, I believe it is never to early to begin a child’s financial education, and it’s a topic I want to touch on as often as possible. The following are some points that can go a long way in helping your kids get off on the right foot financially.

Allowances Aren’t Enough – Whatever age you decide to start giving your child an allowance, be sure that it comes with your two cents on smart spending. If junior is blowing the allowance on candy each week, insist that a portion of the money goes directly into savings. Kids aren’t inclined to think about the long-term, so don’t feel bad about helping yours along!

Lead By Example – You won’t get very far saying “spend as I say, not as I do.” If you’re preaching frugality and savings but racking up new purchases on a credit card, chances are your advice is going to be wasted. Actions speak louder. Kids should give you yet another reason to be financially responsible. If you are, let your child see you in the act of saving money, paying bills on time, and foregoing purchases that you may want but not need.

Watch Where the First Paycheck Goes – When your child, perhaps as a teenager, lands his or her first steady job, be involved in how they use their first paycheck. Of course some of it will go for movies and eating out with friends, but what about the rest? Are they saving for a car or going to the mall on a shopping spree? Sadly I had already spent my first paycheck, by checking off things I wanted in catalogs, long before I had earned it – a telling sign of my credit card woes to come. On the flip side, one of my best friends had over $1,500 saved in an IRA before he started college.

Teach Credit Slowly – Credit cards are a necessary evil. Giving a teenager a credit card is risky, but it is also the best way to begin developing a credit history early on. Two alternatives to giving your child his or her own credit card? Create a duplicate card tied to your account. Allow your child to make purchases on it as long as the balance is paid to you in full each month. If your child overcharges, take the card away until the balance is paid off. You could also use a pre-paid card like Visa Buxx. When it is time for your child’s first credit card, explain the dangers of consumer debt carefully, and check in with them to make sure they aren’t racking up a balance.

Helping your child become financially responsible can be a tricky balance between parental guidance and independence and privacy. At least until your child is 18, it is fair to ask to be involved in all of your child’s financial decisions. Doing so may be one of the most valuable things you can do to secure your child’s future.

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About David Weliver

David Weliver is the founding editor of Money Under 30. He's a cited authority on personal finance and the unique money issues we face during our first two decades as adults. He lives in Maine with his wife and two children.