When your kid is about to go to college, you need to prepare them for a lot of changes and responsibilities. They will be living on their own while getting a higher education and you need to equip them with the right knowledge and skills that will teach them how to be mature adults.
One of the hardest lessons to teach is financial management. Even parents still have a lot to learn about it. The average American household is burdened with debt and you want to make sure that the future household of your child will not be part of this statistic. But to teach them how to avoid debt, you have to dangle in front of them the temptation of debt. And what better debt temptation is there than credit cards.
These plastic cards are one of the things that you have to entrust to your child before they go away to college. They need this to help finance their daily expenses and to help them build a good credit reputation. Some parents, especially those who are struggling with credit card debt themselves may be hesitant to pass on this problem to their child. However, if you do not let your children make their own mistakes, they will never learn the lessons that will make them stronger in the future.
Credit cards are the perfect way to teach your kids about proper financial management. It’s actually all about establishing rules about credit cards.
One of the important rules include who gets to pay for the card. This has to be very clear. You can ask your child to get a part time job to pay for the credit card. Or you can tell them that the payment should come from the allowance that will be coming from you every month. Teach them how to create a budget so they can learn how to live within their means. Make sure to teach them that basics of budgeting before they move away to college.
You also have two options in issuing credit cards. One is to co-sign it with your child and the other is to let them own the card themselves. Again, whatever you decide, make sure your child understands that any purchase on those cards will be on their tab. Be firm about not bailing them out if they rack up a huge debt in their cards.
Before you issue the credit card, make sure the following points are clear:
1. Purchases made on credit card uses the money of the credit card company - not your own. They need to pay it back.
2. Credit card companies are not patient when it comes to payments. The have to pay them at least the minimum amount and pay them on time.
3. Late penalty charges and interest rates are a waste of money so try not to add this to the balance. Learn about the billing cycle and the grace period to avoid incurring both.
4. Credit scores can be greatly affected by credit card use.
Trust your children when it comes to their financial decisions so that means you have to maintain a respectable distance. Do not make the decisions for them but make sure you are still near enough to remind them of how to make the right choices.
Of course, the best teacher is one who lives by what they teach. You cannot force your child to practice wise financial management if you do not implement it in your life.