According to a recent study by JumpStart Coalition & Junior Achievement, on average 35 percent of high school seniors use credit cards, and more than 70 percent of all teens surveyed have a bank account and/or debit or credit card.
If you are facing the decision to allow your teen to use plastic, teaching your child good financial literacy skills is extremely important.
To help your teen learn responsible spending, we have come up with a few ideas for you as a parent to teach your child.
- Talk with your children about saving some of their allowance and wages and putting the rest in their checking account.
- Teach them to use the 10/10/80 rule – save 10%, give 10%, and put the 80% in their checking account to live on.
- Teach your child how to monitor their spending. In today’s world, a check register is not as widely used as it once was. So, help set-up your teen with online banking or the financial institution mobile app. Additionally, be sure to teach them that a check does not clear immediately and they must account for that.
- Teach your child to always allow a “cushion” in their checking account; this helps if they make a mistake or forget to account for something.
In addition, there are things you can do as the parent or guardian to help your teen be successful with money management.
- Use the things they are interested in (like mobile apps or on-line banking, rather than a check book register and the back of the statement); they are more likely to listen and utilize what you are teaching.
- Monitor & check their account frequently. You need to inspect what you expect, and monitoring their account will show you if they have been keeping track and following what you taught.
- If your teen wants to borrow money from you, allow them to, BUT…charge them interest. Devise a system to track payments, and teach them to watch how much goes to interest and how fast or slow the balance decreases.
Once teens are accustomed to tracking spending, they may be ready for a debit card. If your teen makes a mistake in managing their money, don’t swoop in to save them! Allow them to learn from this mistake, allow them to pay back the bank (the charges should not be that high since you have been monitoring their spending), or give them a loan with interest and make them pay you back.
Once your teen masters use of a debit card, a credit card may be the next step. Starting to build credit history is an excellent idea IF your teen is ready.
The best time to allow your teen access to a credit card is when they are still at home in a monitored environment (under your supervision and financial responsibility and guidance) . Education doesn’t stop when your teen gets the first credit card. Set ground rules, such as that the credit card may only be used for emergencies, or allow them a set amount to buy clothes for back to school, or allow them a certain amount daily for food.
Let’s face it, we all learned the hard way so our children don’t have to.
If you have questions or want more tips for your teen, give us a call at Kelly Community, where we are all about people helping people, save more, earn more, and do more financially.