Teaching children budgeting is like riding a bike. You gradually show them how to do it and once they learn it, they are on their own without your support. After that, they will never forget how to ride a bike. After all, you do want your child to have a great annual credit report to present whenever required. So, given below are a few approaches you may adopt to make your budgeting lessons more effective for your child:
1. Give Your Teen A Debit Card – Start with a debit card and gradually progress to credit cards. He will have a limited amount that he can use and has to manage in it. Giving your teenage child a debit card will teach him to budget his expenses. When you receive the statement, sit with him and review it. Discuss what was essential and what expense could have been avoided. He will soon learn the art of budgeting.
2. Add Him As An Authorized User To Your Credit Card – After he learns how to budget his debit card and has managed his account successfully without any overdraft fees, you can take your finance lessons to the next step. Add your teen child as an authorized user to your credit card. There are two benefits to this. The first is that he will have a credit history and the second benefit is that he will learn the intricacies of managing a credit card.
Explain the details of credit, with an explanation of interest rates, APR, how to repay his bills and how he can find out errors in credit card bills. Teach him to consider all these factors when he makes purchases. This is also the right time to give him lessons on credit report and credit score and how credit card bills affect them. Explain how a low credit score can make him pay high interest rates when he will want to take a car loan for his car purchase later on in life among other things.
3. Let Him Prove That He Is Financially Responsible – Now that he has a steady income and has proven that he can manage his expenses, it is time to set him free. Let him get his individual credit card and start building a credit history. You have taught him well and it is now time for him to prove that he is financially responsible.
Credit lessons begin early in life. You can teach your child how to manage in a limited budget and then supervise them. They are going to need these lessons in future.
