One of the primary goals of parenting is to teach children how to be smart with their money. While many parents do this by focusing on budgets and allowances, another important topic is how to avoid going into excessive debt. This discussion often revolves around the subject of credit cards and when to use these types of cards, if ever, as opposed to debit cards.
When a Credit Card Makes Sense
Parents should educate their teenagers on debit and credit cards and the differences between the two. They might highlight one advantage of a credit card which is that having one and using it responsibly is an effective way to help build a good credit score.
An education on credit cards may also include point systems, cashback programs, and the importance of paying attention to the card’s interest rate.
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Parents may stress that while utilizing credit cards may earn a person bonuses, the advantage of the bonuses will be offset if large interest amounts are accumulated by not paying the card off monthly. In addition, young people should be made aware that late payment fees can be very large.
In general, a credit card makes sense for a young person only if he or she thoroughly understands the risks of using it irresponsibly.
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When a Debit Card Makes Sense
A debit card may be a safer option for a teenager that hasn’t yet gained the maturity to understand the pitfalls of a credit card. Parents may entrust a debit card with a teenager knowing that he or she can’t spend an amount over what’s in the account to which the card is linked.
These cards can still teach responsibility from the fact that the young person needs to remember the PIN associated with the card. Plus, he or she also needs to track the balance of the associated account. However, a parent need not worry about excessive interest charges or late payment fees being assessed in the event of a teenager’s lapse in memory.
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If parents are concerned that their children aren’t responsible enough for a credit card, a debit card linked to a young person’s account is an excellent way for that person to learn the importance of spending only what dollars are available. It allows the young person the flexibility and convenience of utilizing a card instead of cash.
But, it mandates that the user be cognizant that he or she must first deposit funds in order to use them. This prevents a young person from getting into the habit of spending more than he or she can afford, which is an important lesson to learn before acquiring a first credit card.