Practice Makes Perfect: Teenagers and Credit Cards

With Americans' increasing reliance on plastic money, it's no surprise that we are looking to build our credit ever stronger. Many Americans, thinking ahead to a future when their children may be without them, are looking to teach proper financial skills early. And for their children, it can be a great experience. Younger teens can learn to use their allowance in the world of credit, and teens with their first summer job can broaden their work experience by learning how their wages work as credit.

Helping Teens Learn About Credit

There are two excellent ways that banks and credit card companies can help teens learn about credit. The first is the debit card. In the marketplace, the debit card functions just like a credit card. Frequently debit cards even have major credit company logos on them, and there are options at the store to use a debit card as credit or debit. With the credit option, the teen has to sign the receipt, just like he would have to with a real credit card. What makes the debit card such a great learning tools is that there is a fixed limit to how much a teen can spend with one. If he only has $100 in his bank account, he can only spend $100. This has all kinds of benefits. It gives the teen a kind of enclosed playing field to experiment with his credit. He or she gets the chance to feel like an adult with the worst consequence being embarrassment if the card is declined. And while that may be an unpleasant experience at the time, there are plenty of lessons to learn in that moment. All of a sudden the teen is faced with the reality that money, when not kept track of, can go very quickly. If they want to avoid this kind of embarrassment in the future, they may be spurred on to more responsible behavior. Perhaps balancing their bank statements every month, or keeping track of their spending on a calendar or spreadsheet. Even if they don't change their behavior, the experience has still occurred, and the teen has still discovered a little bit about how credit works.

Prepaid Credit Cards

A second method that is becoming popular is the prepaid credit card. Prepaid credit cards are offered by major credit card companies, and function like a debit card. The main difference is that they are linked to an account that is separate from a bank account. These cards are especially useful for younger teens who may not be eligible for or have need for a bank account. Parents can use a prepaid card to give a teen an allowance, or maybe just some money to take their friends out to the movies. The flexibility of the prepaid credit card is one of its best features. Many companies even provide online records of spending that parents can view. If the teen seems to be developing irresponsible spending habits, the online records provide visual aid so that parents and teens can consider and discuss problems. Add that to all the other benefits, and you can see why prepaid credit cards are becoming so popular. As time goes by, the world is expecting ever more out of our children. They are faced with responsibilities early in their life, and financial responsibilities are no exception. Debit cards and prepaid credit cards are powerful tools to help children deal with these responsibilities and learn skills they will use all their lives.