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Sending a child off to college can be a nerve-racking experience for a parent. In most households it is the first semi-permanent parent-child separation, and the young adult rite of passage can make parents both extremely proud and filled with angst. Parents may feel rather helpless sending their kids out into the world and one of the ways they try to compensate is by providing strong financial support, but financial support does not always involve giving someone money. Some of the most valuable financial support a parent can offer to a youngster is financial knowledge and experience.
- Don’t wait until students have already begun packing their bags for college to put that kind of strategy into motion, though, or it may be too little, too late.
- Preparing a young adult to be financially responsible is something that should ideally begin years before they leave home and start financially fending for themselves.
- The more financially literate a student is before he or she takes charge of their own money management, the greater their chances are of enjoying lifelong financial stability.
Students typically spend four years in high school to earn a diploma, and then four more years in college to earn an undergraduate degree. When it comes to training them to carry a credit card, a similar investment of time and energy is definitely a good idea.
#1 Teach the Fundamentals
At a very early age kids can begin to learn about budgeting their money and saving up for special purchases. As students become more mature and responsible, adults should instill advanced lessons about things that many grownups may take for granted. How do you read a credit card statement? Can you identify the interest rate and see how charges are added when you carry a balance from month to month? What about the small print on the back of the statement, where it explains extra fees and charges for such things as balance transfers or cash advances? Do you know what is meant by a credit card limit, and what the difference is between secured and unsecured credit?
Show a copy of your credit report to your child, and explain to them how companies track your credit payment history and calculate your all-important credit score.
#2 Credit Card & Credit History Literacy
If you are like plenty of parents who find themselves a bit intimidated by credit cards and feel that they aren’t astute enough to teach this complicated stuff to their kids, don’t feel bad. Thousands of attorneys, bankers and professors complain that they have trouble deciphering standard credit card statements. The good news is that there are plenty of free available resources to make the job of teaching your child about money and credit cards much easier and efficient. You can take them to the bank, for instance, and ask a loan officer to explain to them how credit and debt works, and how to establish good credit.
Our own website can help in this regard, too. We recently sponsored an education conference in support of the National Education Association. You can independently begin teaching your 6-year old child about money management or teach your 16-year old about interest and credit cards. Other schools offer optional classes or workshops, and students should try to take full advantage of those, but don’t wait until you’re on a college campus. Start early, long before you find your financial life rather dependent upon credit cards.
#3 Gradually Introducing Plastic
A good way to start is with a prepaid card. Prepaid credit cards have plenty of drawbacks, but when it comes to plastic with training wheels, it’s hard to find a better vehicle. A student learning to manage credit can use a prepaid card to get genuine hands-on experience. Choose the right prepaid card and you can use free online tools to monitor your spending habits and track your budget.
You’ll learn how to stay within your spending limits, and how to pay into your account in a timely fashion. If you flunk those assignments you don’t risk damaging your credit, either, because it’s just an experiment. You can learn from your mistakes, gradually, in other words, while you become more comfortable and adept at analyzing your monthly account statements and paying with credit.
#4 Two User-Friendly Cards with Training Wheels
It’s like having a learner’s permit for plastic. With time and practice you’ll develop the kind of money management intuition that empowers you to make prudent financial decisions and avoid the pitfalls. That’s when you know that you’re ready to use plastic on your terms and to your personal advantage – versus feeling like a victim of sophisticated, sometimes sneaky card company tactics.
American Express cancelled their short-lived “Make Your Move” program, which monitored a prepaid cardholder’s credit history internally. If you performed well, Amex would invite you to apply for one of their unsecured credit cards. I really wish this card was still around, because it was an ideal tool for students making that transition to credit card autonomy. I can recommend other prepaid cards from American Express-the same ones I talked about earlier this week- because those particular cards do not charge excessive fees, and are a good choice for any student using prepaid plastic as a stepping stone toward credit card independence.
Putting it All Together
After going through this educational process, a student will be well-armed with real-world experience. They will be able to responsibly manage their credit card account, and have a healthy respect for the value of an unblemished credit profile. It will be time to finally graduate to the status of independent cardholder, with a full-fledged credit card. Education is a lifelong process, though, so don’t stop there. Qualifying for your first credit card is just the beginning, in the same way that being accepted by a university is just the start of your collegiate career.
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.
*The content in this article is accurate at the publishing date, and may be subject to changes per the card issuer.