3 Tips for Teaching Your Teen About Credit

3 Tips for Teaching Your Teen About Credit

Raising a child requires parents to wear many hats. Sometimes you’re a chef (or at least an imaginative line cook), sometimes you’re a math mentor, sometimes you’re their cheerleader. Another role you should embrace is their money coach – the person who can teach them how money works and how it can work for them.

Not sure where to start? Don’t worry. We’ve got you covered with three tips that can help you turn your teen into an all-star money manager. When they take what they learn now into their future, they’ll have the foundation they need to make sound financial decisions, especially where credit is concerned.

Although you don’t want your child to rush into loans or credit cards that they’re not ready to manage, establishing a credit history as a young adult can benefit them as they begin to contemplate student loans and credit cards, as well as any major purchases, such as a house or car. That means the best time to teach your teen responsible money habits is while they’re still at home.

Talk to Your Teen About Credit

Before jumping into any discussions of credit, it’s good to review the basics. Take time to sit with your child to go over their financial accounts and help them plan out spending, saving, and giving. Encourage questions. If you’re stumped for an answer, check out our blog! It’s filled with all kinds of money management information.

A good place to begin is talking about purchases they’ve made with their debit card and making sure they comprehend the link between their PSECU debit card and their PSECU account. A debit card links to their account, which limits their purchases to the amount of money they have in their account. It’s an excellent way to start them off and give them independence to manage spending their money. At PSECU, you can be listed as a joint owner on your child’s account to make it easy to monitor their spending habits.

The lessons you teach them about managing a limited amount of money and monitoring their accounts will set a good foundation for them when they become a young adult and are ready for their first credit card. These three tips will get your teen ready for this major cornerstone of their financial life.

1. Educate Them

Learning about credit scores and how to manage money is vital for positive long-term spending habits. Your child’s knowledge will pay off in the end with higher credit scores when you teach them the basics of earning, spending, and saving.

It’s never too early, so begin talking about finances as soon as you think it’s necessary. Pre-teens can understand what it means to owe money, which means it’s easy to integrate the topic of credit when they begin to pick up on things. Make sure they know how to use a credit card responsibly before they take on their own.

2. Teach Them How to Check a Credit Score

Teach your teen how to check a credit score. It’s important to guide them first-hand, as they may not have financial readiness classes offered at school. Many teens don’t have a credit score yet because they have no borrowing history that can be reported. If you’re comfortable sharing your own, you can show them how you’re able to monitor it (which you can do with the PSECU app!). You can talk to them about how a credit score is calculated and what factors impact it.

3. Open a Secured Credit Card with a Low Limit

When the time is right, have them apply for a secured credit card. Available to young adults at least 18 years old, a secured credit card gives your child the opportunity to have a limited budget, which is based on how much they put down as their security deposit. For those who don’t have a strong credit score, or any credit score at all, a secured card will help them establish credit.

The lower limit will teach them patience and the ability to budget what they need without overspending. Remind them to make on-time payments and pay their bill off in full so they don’t lose money on unnecessary interest charges. They can build a higher credit line over time if they’re responsible for their payments and spending habits.

Educate your teen on what to use credit cards for and how not paying their bill on time would cost them money. In addition, just as good habits with a secured credit card can help your child, bad habits can hurt them. Not paying bills on time will only negatively impact their credit, and letting interest accrue will cause them to lose money unnecessarily.

How to Know When Your Child Might Be Ready for a Credit Card

You know your child best when it comes to their strengths and weaknesses. Let your gut guide you in identifying when it’s the right time to help them apply for a PSECU secured credit card if they’re 18 or older. It may come along with college or high school graduation and serves as an effective way for them to pay for any emergencies.

Signs they may be ready include that they:

  • Can budget money when it comes to saving and spending
  • Can explain how a credit card functions
  • Have basic knowledge of money management
  • Are honest about their funds and ask questions when confused
  • Are reliable and regularly meet deadlines

Open an Account for Your Child

If you’re a PSECU member, anyone in your household is eligible for membership, as well. Visit us online to open an account or learn about other financial tips that can help you and your teen on the path to financial success. If you’re interested in our secured credit cards, please call us after you join for more information.

Become a Member

The content provided in this publication is for informational purposes only. Nothing stated is to be construed as financial or legal advice. Some products not offered by PSECU. PSECU does not endorse any third parties, including, but not limited to, referenced individuals, companies, organizations, products, blogs, or websites. PSECU does not warrant any advice provided by third parties. PSECU does not guarantee the accuracy or completeness of the information provided by third parties. PSECU recommends that you seek the advice of a qualified financial, tax, legal, or other professional if you have questions.