Teaching Young People to Manage Credit Cards Wisely

Credit cards can be a good financial tool if you know how to manage them properly. If you control your spending and pay the balance in full every month, you will benefit from rewards programs and build positive credit history. However, many people are unaware of all aspects of using credit cards and get into credit trouble. It especially refers to teens and young adults who have insufficient financial skills to make well-considered finance decisions. They hurry to get a plastic before they are ready for the responsibility.

It is known that young people tend to max out their credit cards more than older adults. If teens go shopping, they can spend more on their credit card than they have intended. Plastics give them carte blanche to make as much purchases as they want. They pay less attention to the price of the goods because they think that they have got enough money on their credit card. Young people are also more impulsive, and there is a direct connection between impulsiveness and overspending.

How to help young people manage their credit wisely? There are several points to keep in mind. First, young people need to have enough level of maturity for understanding credit and making it work for them. Then, they need to posses enough financial experience before they get their first credit card. If children don't know how to manage their cash, they will be unable to use their credit wisely.

Young people need to get a good financial education in schools or from parents.Researches show that the more information parents pass on to their kids about credit, the less credit debt their college-age children get into.

When it comes to teaching young people about credit, there are a lot of ideas on what to tell them. Teens need to know about the features of student credit cards, annual percentage rates, grace period and how the balance is calculated. Tell them that banks can change APR - at a much higher rate - when you make a late payment or exceed the credit limit. Give teens an opportunity to examine the terms and conditions of credit card agreements and what is written in a credit card statement.

Explain kids that credit cards are not free money. You borrow it from the credit card issuer and you have to return the debt with interest. Paying the bills in full every month helps save on interest. If you are unable to recover your debt every month, pay as much as you can. Making minimum payments could take years to pay off a credit card balance in full.

Then, kids need to know that those who make purchases with credit cards spend more in comparison with people who use cash or checks. So it is necessary to track your expenses. Spending more than 25% of credit line reduces the credit score. It will affect the ability to get a job, rent an apartment or receive loans in future.

Teaching money management skills early is necessary. Knowledge is power. Preventive financial education will prepare young people for the real world and give them enough skills to build a positive credit history.