The Importance of Using Credit Cards Responsibly

 

We’ve all heard stories about college students who racked up thousands of dollars in credit card debt. These cautionary tales remind parents about the importance of protecting their children from making bad financial decisions. But, even more so, these stories serve as reminders that newly minted high school graduates can make “adult” decisions that will haunt them for years to come.

 

As millions of high school seniors prepare to graduate later this month, it’s a natural time for these young adults to look forward to greater independence, responsibility and the realities of adulthood. This is also a natural time for parents to sit down with their children to talk about the dangers of credit cards and how to use them responsibly. As part of this conversation, parents need to educate their children about how credit works and empower them to take an active role in their financial future by using credit responsibly.

Building Credit

There is great value in building a healthy history of credit by responsibly obtaining and managing credit accounts. A good credit history can mean paying less for apartment rent and insurance products, and receiving a lower interest rate on future purchases.

 

Parents and young adults should team up to develop a plan for using credit and building a strong credit history before children begin using personal credit cards. Talk to your local banker about opening a low-limit credit card in your child’s name, but put strict parameters around its use. Making one or two small purchases on the card each month and paying off the balance will help your child build a good credit history

Don’t Fall for the Gimmicks

Credit card companies love to lure in young customers with t-shirts and other cheap merchandise, especially on college campuses. However, many of these cards carry annual fees and high-interest rates that can end up costing a great deal more than the “free” item is worth.

 

Encourage your children to resist the urge to fill out credit applications for freebies, even if they say they’ll never activate the credit card upon approval. There are many ways to build credit, and this isn’t one of them.