Putting Teens on the Path to Good Credit
Your teen could probably not care less about his or her credit score, and to be honest, there's little he or she can do about it before college. But ensuring your child's financial responsibility and good credit in the future means starting early. Much like learning a second language, acquiring financial literacy is best suited for the young.
Talk it out
"Have a conversation about money," advises Laura Levine, director of Jump$tart Coalition, which promotes financial literacy in students. "That goes a long way to opening their eyes about personal finance." Talking about money makes sense, but it's easier said than done. What do you talk about? Even a child as young as 6 can understand what money does and that it doesn't appear out of nowhere–that the time you spend working translates into the cash that comes out of the ATM. As your kids get older, when they can recognize what a credit card is, explain that credit is a form of debt and that Visa and MasterCard do not equal free money. Give examples, like how having bad credit can cost hundreds of thousands of dollars over a lifetime. And don't just throw out big numbers. Make clear that that's enough money to buy a house.
If you're still finding it difficult to get the words out, head for the Internet, to sites such as Wells Fargo's Hands On Banking program, for more help. Just broaching the subject, even if your kid doesn't comprehend it 100 percent at the time, will make it easier for him to ask the right questions when the time comes.
Take Scott Weaver, for instance. The 23-year-old student and Web developer from Orange County, Calif., has already wrangled with a collections agency over unwanted magazine subscriptions, nearly became victim of a vacation prize scam, and says he has earned the perpetual disdain of his accountant. On the other hand, Weaver is the first to say that his wife is his better half when it comes to money. Weaver lavishes endless praise on his wife and notes her parents had always talked openly and frequently about finances. Taking a cue from his in-laws, Weaver has learned at least one important lesson: "I'm definitely talking to my kids about it."
Embrace an allowance, teach budgeting, and stick to your guns
Advice and guidance are great, but the next step is to give your kids money–and all the responsibility that comes with it. Set up an allowance system, and make your kids pay for their day-to-day expenses. Establish a clothing budget or a limit to what can be spent on "wants." If they blow through a month's worth of money in a week and come begging for more, say no. Sooner or later, they'll get the message and budget for next time. "It's a matter of having the willpower and discipline," says Levine.
Almost half of Americans spend more than they make–on average, $1.22 for every dollar in income. Credit card debt and bankruptcy filings have reached record levels. In such an atmosphere, exercising self-control over your spending is one of the few protections against debt and subsequent lousy credit.
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