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VOL. 127 | NO. 92 | Thursday, May 10, 2012

Dana and Ray Brandon

Should Teens Have Credit Cards?

By Ray and Dana Brandon

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Ray’s Take While I don’t like debt – especially credit card debt – I do realize that credit cards are a necessary tool today. This means part of raising your kids to be responsible adults requires teaching them how to use credit cards the right way; by teaching them to control their spending and pay off their credit card each month, on time and in full. I have seen an extraordinary amount of pain and suffering result from a lack of understanding of credit cards.

If your child doesn’t have a clear understanding of the value of money and the importance of saving for a purchase, he or she is probably not ready for a credit card. Before entering the slippery world of credit, kids need to be able to thoughtfully manage the money they have in hand.

However, once teens have shown the ability to maintain and balance a checking account with consistent reliability, they are probably ready to start using a credit card. Don’t just hand over the card, though. It’s important that you monitor their spending and talk about the choices they are making.

There are a lot of different options available for young people learning about responsible credit card use. These options include an account in the teen’s name, with the parent co-signing; a joint account with a parent; and a credit account tied to the teen’s already established bank account. You can even opt for a prepaid card that is funded by the teen’s own money.

Be sure to read the fine print before selecting a credit card for your teen – some cards that are meant specifically to introduce young people to credit include some outrageous fees.

With your guidance – and, hopefully, your good example – you can start your teen off on the right foot for personal finances.

Dana’s Take Just like adults, a lot of teens have a hard time realizing that credit cards are a convenience and not an extension of their income. They need to realize everything they put on a credit card should always be paid in full as soon as the statement appears.

Unfortunately, most teens do not get the message. In fact, more than 80 percent of graduating college seniors carry credit card debt. Before they land their first “real” job these kids are burdened with some of the highest-interest debt around.

A lot of this comes about because credit card companies market heavily to college freshmen. These teens get excited to be recognized as adults and are only too glad to sign up. They may think they won’t even use the card, or only in case of emergency. Then, the desire for a late-night pizza feels like an emergency and one thing leads to another.

If you teach them credit card responsibility before those college years, it could make a life-long difference.

Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker. Contact Ray Brandon at raybrandon@brandonplanning.com.

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