Putting Teens on the Path to Good Credit
Even better than just creating budgets is getting kids to work for their money. "There's no value to money if they didn't have to go and work for it," says Max Jaffe, an accountant and author of My Money, Myself. Have them do chores or get a job, he advises. "Make them trade their time for money."
Open checking and savings accounts, and get plastic into their hands
Monthly statements, paying balances, and using cards to spend money are pretty abstract concepts, so get your kids started early. Have them manage their own accounts to see where each dime goes.
Debit cards, which allow users to spend straight out of a checking or savings account, can simulate the credit card experience, as well as prepaid credit cards. While prepaid cards work similarly to debit cards, ones aimed at teens (some as young as 13) can have built-in restrictions so the child can't purchase illicit goods, such as pornography, while also allowing parents to view buying activity. They also usually come loaded with extra charges and fees.
Some financial advisers oppose putting plastic into kids' hands, saying it does little to teach the value of money, but others say the earlier the exposure to credit, the better. "Don't take the 'just say no' attitude with credit cards," says author Liz Pulliam Weston. Eighty percent of college students have a credit card, and to delay the inevitable is also missing an opportunity to give your son or daughter experience with credit while still looking over his or her shoulder.
If you're really concerned just about your child's credit score itself, sign him up to one of your credit card accounts. Most of the time, this will be reported on his credit report later in life and can boost his score (that is, if you maintain your own finances well). But giving your child unfettered access to your own account can be highly risky, especially if he is likely to be irresponsible and you can't cover his expenses. This sort of trust should be followed up with plenty of oversight and guidance–and never be used as a substitute for teaching good habits. One good account on a young person's report won't mean much if he mismanages everything else on his own.
More about credit:
• Building Good Credit: A Guide for Young People and Parents
• Who Checks Your Credit Report?
• Credit in College: Easy to Get, Easy to Ruin
• Credit Reports and Scores: FAQ
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