Many parents would like to train their teenagers on correct debt management. However, some parents might be hesitant to provide teens with their own credit lines, for fear that it will lead to bad credit. In this article, let’s discuss how parents can teach teens on how to handle debt responsibly by setting credit limits.
No Credit Line Prepaid Debit Cards
One tool that parents can use is the prepaid debit card. This plastic card looks like and functions like a regular credit card. It can be used to pay for groceries, medicine, books, food and other bills.
However, unlike a regular credit card, it does not provide its holder with a line of credit. This means, a debit cardholder can only spend the funds available in the account. When the balance runs out, the debit card cannot be used for new transactions unless a new deposit or cash is reloaded in the account.
Hence, a parent can deposit a minimum amount of cash each month that a teen can spend but since the funds is limited, overspending or unnecessary spending is discouraged. Before charging a purchase or a bill to the debit card, the teenager will first consider he/she has enough funds and if it is really important.
Limited Credit Secured Credit Cards
Parents may also consider providing their teen with a secured credit card. Unlike a debit card, this type of credit card provides its holder with a credit line. However, credit limit is determined based upon the amount of cash deposited in the account.
For example, if the amount of security deposit submitted is $200 that means the secured cardholder has a maximum of $200 limit. Some issuers may offer a slightly higher or lower credit line than the amount of security deposit.
Hence, a secured credit card is also ideal for teenagers because it gives them the chance to manage credit but limits their spending at the same time.
Teach Teens About Responsibility
It’s a good idea for parents to allow teenagers to take responsibility over the payment of their debts. This way, teens can become aware that if they charge a purchase or a bill to their credit card, they are ones who have duty to pay their debts as well. This is a good training for young people and parents can play the role of a financial adviser to help a teen become more confident in managing finances and stay out of bad credit at the same time.