Teaching Your Kids How to Manage Debit and Credit Cards
Teaching kids how to manage a credit card is an important lesson for parents to pass down.
Many Americans receive their first debit or credit cards when they are teenagers. As they begin working summer or after-school jobs, they begin to take some ownership of their personal finances. Having a card of their own is a good way for kids to learn about the challenges and benefits of controlling their personal funds.
Teaching kids how to manage a credit card is an important lesson for parents to pass down. According to the 2015 Parents, Kids and Money Survey issued by T. Rowe Price, 91 percent of parents said they had enough understanding of finances to teach their kids about money management. The same survey showed that 52 percent of parents find it important for their kids to have their own credit cards to learn firsthand how to handle money.
If you are a parent who doesn't feel comfortable explaining to your kids why a credit card is important, or do understand the finances but just want a refresher tutorial, follow three steps to teaching kids about managing a debit or credit card:
1. Explain the differences between credit and debit, and how paying bills works for each
To some young adults, there is no obvious difference between a credit and debit card until it is their own money being withdrawn and spent. As a parent, you should explain the differences between the two types of cards and how payments are unique to both.
The main priority to cover when differentiating the two cards is how bills are paid. With a debit card, funds are immediately taken out of a checking account. With a credit card, payments are made at the end of the month, with interest growing if funds are not repaid in full. The longer cardholders wait to pay back the bill, the more they will owe. Therefore, when covering bill payments, teach your kids how to plan ahead so they are not overdrawing their account.
2. Knowing when to use a card
A child may think a credit or debit card is the ideal method to make every purchase. Let them know that isn't accurate. As U.S. News and World Report explained, there are other ways to pay for items , and some are preferred depending on what they are buying. A debit card can be used at ATMs to withdraw cash, and a checking account gives your kids the chance to write a check when needed. Depending on the situation, cash or a check may be a better option than paying with a card. Knowing when to use each type of payment method will help kids map out their finances and not overuse their cards.
3. Be aware of fees
From charges for overdrawing an account to payments for using ATMs from a different bank, there are many fees associated with having a card. For a kid just learning how the system works, it can be confusing to figure out how much they owe. CNN Money stated parents should walk through the steps and explain how certain payments work. That way, children aren't at risk of paying anything more than what they already owe.
Parents who want to help their kids acquire their first debit or credit card or open their first checking account should talk to a professional at Vectra Bank today. Member FDIC. Credit approval required. Terms, conditions and restrictions apply.