How to Teach Your Teens About Debt And Financial Responsibility
Financial literacy education is limited in schools. Most teens rely on their parents to teach them how to deal with money and manage it properly. As with most things, knowledge is power. Teach your teens about debt before they get into trouble.
Teens usually don’t respond too well to drawn-out lectures, especially about financial responsibility, so keep the speeches to a minimum. Instead, approach learning about debt like teaching them how to drive. They can learn from a book or the internet, but learning by doing it with you as a guide is when real knowledge sinks in.
If your teen doesn’t have a bank account, it is time to get one. Most banks or credit unions will open an account with your permission when a child is 13. Often, the bank will offer your child a debit card. Sign up and begin phase one of how to teach your teens about debt, financial responsibility and money management.
Sign them up for online access and have them make a few small purchases to experience the process. Once they see for themselves how it works, explain how a debit card may look like a credit card, but it behaves much differently. When It’s time for a discussion about credit cards, teach your about paying interest, credit limits, and how to report fraudulent charges or a stolen card.
To really help your teen understand debt, let them borrow money from you for something they have been wanting. However, treat it like a loan from a bank, not from Mom and Dad. Draw up an agreement with an interest rate, a payment date, and a minimum payment. You can even generate a monthly statement if you want to enhance the realism. Borrowing actual money and having to pay it back will provide real-world experience with lending and interest rates. The first time they can’t make a purchase because they still owe money will make a big impression.
Be sure to answer all of your teen’s questions through this process, and provide them with education resources they can use on their own. Most banks have an educational program specifically designed for teens that you can access for free as a customer. If not, the U.S. Consumer Financial Protection Bureau has educational materials anyone can use.
In the event your son or daughter has already learned a few things about credit the hard way, feel free to contact us at Key Credit Repair for a FREE Credit Repair Consultation.