A teen-ager with a credit card can be bad news waiting to happen — unless you take the time to teach your teen the benefits and dangers of credit and the responsible way to use credit cards.
This Money Management column from the MACPA and the American Institute of CPAs offers tips on how to do that. Explaining how interest works, emphasizing the importance of paying off debts, and taking credits cards out for a supervised test drive are important parts of every teen’s credit education.
You might also want to read “Your Losing Hand,” a column by The Washington Post’s Michelle Singletary. She claims it’s almost never wise to use a credit card.
“The banks know and studies show that even those of us who think we are using credit wisely are suckers,” Singletary writes. “That’s because when you use credit, you often spend more than if you used cash. Even if you don’t pay interest on the money because you settle the bill before the next billing cycle, or if you collect a plane ticket or two as part of a reward program, you’re still spending more. That means the banks win and you lose.”
I hadn’t stopped to think of it that way before, but that argument makes a lot of sense — although I wholeheartedly support the notion that the use of credit cards is, like most things, fine in moderation, especially when emergencies leave you with no other option. Still, for most people, taking away their credit cards is like taking away the air they breathe.
What’s your best advice for breaking the credit habit? Let us know, then check out these other financial literacy resources: