How to Talk to Your Teen About Money
By Hon. John C. Ninfo
June 04, 2008
Get Your Teen a Debit Card
The debit card should be tied to the checking account. When used, your teen should make an entry on a check register.
Consider whether you want the debit card to have overdraft protection. It may be just an easy way for your teen to overspend once he figures out how overdraft protection works.
Using their checking and savings accounts and debit cards responsibly will teach your children how to manage and budget their money.
Help Your Teen Create a Realistic Budget Before They Go to College
Now that you have taught your child some of the basics of managing money, it’s time to get serious about budgeting for college.
There will be many new things to spend money on at college, and your teen might be tempted to take advantage of all of them. She might even be tempted to try to “keep up” with some new, wealthier friends.
Visit the CARE Program Web site, for an article on how to build a college budget together. Discuss ways to save money, and keep working with your teen to update her budget and monitor her own spending throughout college.
Explain to your children the dangers of credit cards, and discourage them from having one until they are college seniors.
Your teen doesn’t know that credit cards are not new money, more money or free money. In fact, unlike reasonable student loans, home mortgages, cars or business debt, credit card debt at high interest rates and exorbitant fees is bad debt and the most expensive debt they can incur.
Explain to your child that if she uses a credit card and makes only low or minimum payments, she may end up paying two or three times as much for the items she charged. It will take her years to pay for the items because of the interest and fees added on.
The credit card industry makes billions of dollars in profit every year because people buy into our competitive consumption society that believes debt is OK.
Encourage your child to resist all of those offers for credit cards and to not contribute to a credit card company’s profits. Explain the consequences of credit card abuse. Help your child understand that the best way to manage debt is to avoid it—and the best way to avoid debt in college is to avoid credit cards.
Get your student a credit card in her senior year of college to improve her credit score
The responsible use of a credit card will definitely help your teen’s credit score for a future home or car loan. So help your student get one credit card with a low credit limit and a reasonable interest rate senior year of college.
Explain to her that she should charge a few things that she can afford, and pay the balance off every month on time.
However, for a few months, she should charge a small item and not pay the balance in full, but make the minimum payment on time, paying the balance with interest at the end of the following month and making sure she doesn’t charge anything more during that month.
This will provide her with a favorable credit history for when she wants to get a home or car loan.
Improve Your Teen’s Financial IQ
Visit the CARE Program site as a family. You can learn important tips on personal finance, check out links to other sites and read past CARE Program articles from The Next Step Magazine.
Hon. John C. Ninfo is a Chief U.S. Bankruptcy Court Judge. He founded the Credit Abuse Resistance Education (CARE) Program, online at careprogram.us.
Article reprinted with permission from Next Step Magazine.