Many parents have sent their recent high school graduate off to college, and some may have considered giving that young adult a credit card to help them cover basic expenses.
While a credit card can be extremely useful to the average college student, their probable lack of experience with this — or perhaps any — type of borrowing could pose a problem. It is for this reason that parents should take the time to carefully explain the importance of properly managing a credit card account to their kids, as well as offer tips on how to do so.
Perhaps the most important lesson a teen should know about using a credit card is the importance of paying the bill every month. This aspect alone makes up 35 percent of their credit rating and at this early stage in their borrowing life, any missteps in making these payments could have profound negative effects going forward.
However, it’s also vitally important that they learn how to properly manage their credit cards and avoid significant debts on them. This is important because it will not only help them avoid the large amounts of stress — both personal and financial — that can come with carrying a big balance from one month to the next, but it will also teach them about money management techniques that will be applicable for the rest of their lives.
Parents should also make sure their kids know the cost of mismanaging their accounts. This should include not only an explanation of how credit card interest rates are applied to debts, but also the penalty fees and rates they might face for going over their limit, missing a payment, and so forth.
By making kids aware of the proper ways to handle their accounts, parents might be able to help them avoid large amounts of debt that can cause headaches in the future. Currently, the average college student graduates with tens of thousands of dollars in student loan debt, credit card balances and auto financing to their names, all of which can make it extremely difficult to establish financial independence. Working with them to keep credit card debt down can be a massive help both now and in the future.
Image: NazarethCollege, via Flickr