Introducing the credit card to your child
In today’s fast-paced environment of commercialism, the credit card offers convenience and flexibility. For these reasons, many parents have introduced their children to credit cards, as a tool for emergencies or otherwise. A credit card can be especially useful for teenagers who are starting university ú when something crops up on campus and they are totally out of cash. However, while there are merits to increasing the purchasing power you vest in your child, it is important for him /her to have a proper understanding about credit and how to use it wisely. You can set your child on the road to fiscal responsibility or doom based on how you introduce them to credit.
Firstly, the child must be made aware that a credit card is a loan and so it must be repaid.
Secondly, you should make it clear that the available funds should not be squandered, some reserve must be left in case an emergency crops up.
Thirdly, set an example. If your child sees you using your own credit irresponsibly, what do you think that he/she will do? Pinching Pennies suggests having family meetings where finances are discussed on a regular basis. Include in that discussion how credit will be used. Here are some tips:
1.
Are they to be used for every day purchases or locked away until an emergency crops up, or a little of both?
2.
Let your child see your credit card statements so that he/she will become familiar with how purchases credited are recorded by the bank.
3.
A credit card is to be treated with care. A lost card must be reported immediately because you will be liable for its misuse.
4.
Set a spending limit each month that you will repay. If the teenager spends over the limit, he/she should pay up out of their pocket money or earnings from a part-time job.
5.
Discuss the differences between wants and needs. You may want a new pair of shoes, but you need to have value on your card for emergency spending like running out of gas in the country or visiting the doctor.
6.
Tell him/her that this is an important step to building credit history with a bank. A pattern of repaying credit cards can help them in the future to access personal loans and even a mortgage. This is one of the first steps in their financial future.
7.
Introduce secured cards which will help you stay within the limit on the available credit your child has at his/her disposal. In this way, you give your child responsibility and flexibility. Note that when the limit has been reached, then more money has to be added to the card. Diane Smith Sears, manager of card services at National Commercial Bank (NCB), recommends cash cards instead of a credit card. This card has stored value and the parent determines how much she wants to make available to the child. Sears also stated that secured cards offer more protection because they require a PIN number while credit cards are signature based.
So as a parent, you have two options that will give your child financial flexibility and decision-making power. The choice between secured or unsecured cards really depends on the level of maturity of the child and the trust between parent and child.
