By Jackie Moore
By helping your teenagers establish good credit, they can greatly improve their chances of obtaining:
1. A good-paying, rewarding job/career
2. A money-saving, door-opening credit rating
3. The lowest interest rates
4. Financial independence
Although teens need a basic understanding of personal finances, many parents don't help teens acquire the right skills and habits to become responsible and trustworthy consumers. These "skills" include establishing a good credit history by managing debt responsibly. Not letting teens have any debt may sound "brilliant," but how can they establish credit without it?
Young people will incur debt. In fact, a Sallie Mae study posits that college seniors, on average, had a credit-card debt of about $4,138; additionally, one out of five seniors had debt in excess of $7,000.
What about identity theft? Let your teens know more than 8 million people became identity theft victims in 2010, according to LifeLock.
Teens need to learn the following concepts:
While you can help them a little, it's up to them to establish good credit and protect their identity. Like teaching them to ride a bike, you should hang around only long enough to let them do their own "pedaling/steering." Here are some practical tips:
1. Insist that your teens start earning their own way; even a part-time job will do. In fact, the Credit Card Act of 2009 requires that banks confirm income before granting credit to anyone under 21, according to CreditCards.com.
2. Encourage your teens to get the right type of credit card. A secured credit card, for example, will not let them spend more than the amount deposited into a savings account; the same applies to a debit card tied to a checking account. When they're ready, let them apply for a low-credit-limit card. Or you can make them an "authorized user" on one of your own cards.
3. Sit down with your teen each month to candidly discuss financial matters; don't assume they know what you know.
4. Help your child establish credit by using non-credit card options. A car loan and a payment-plan-based shopping service (such as Fingerhut Corporation offers) are only two of many examples.
5. Teach your teens how to improve a credit rating score, as well as ways you might hurt it (closing down accounts, not using accounts, paying late, etc.).
6. Don't make the mistake of giving teens too much credit too soon; in general, avoid co-signing situations, especially for big ticket items. Tell you teens to follow the same rule.
7. Tell your teens to be extremely stingy with their financial/personal information, especially online and when dealing with strangers.
It's up to you to make sure that teenagers get the training they will need to meet their financial responsibilities. By helping them establish good credit now, you will help them acquire the expensive things needed later, live in the safest neighborhoods, and qualify for their first choice jobs.
Jackie Moore is a financial manager at an independent bank in Alabama. She shares advice on budgeting and finance for small businesses and homeowners.