When teenagers leave home they're bombarded with credit card and other loan offers. If they've already learned to use financial services responsibly, with their parents' help, they're less likely to get into trouble—paying high interest rates and fees, missing payments, amassing excessive debt, damaging their credit ratings.
Any child with a financial goal is ready for a savings account, and when a young person has a steady income, it's often time to teach money management through use of checking accounts and ATM (automated teller machine) or debit cards.
After teenagers become proficient at using checking and ATM or debit cards, some parents let them open credit card accounts, usually with low credit limits such as $200 or $300. If a teenager pays the balance off regularly and on time, it builds a positive credit history—essential for basic transactions like renting apartments, getting good jobs, and obtaining car loans once on their own. It also lets teenagers learn to manage credit while their parents are there to help.
Parents also should take an active role in teaching young people how to use financial services responsibly. "Parents should go over the first few statements with their children, and explain how to read them. Go through the statements step by step and show them how to reconcile the account against their records," recommends Philip Heckman, director of youth programs, Credit Union National Association (CUNA), Madison, Wis. "Then be there as a resource when they do it on their own."
After young people are accustomed to managing their accounts, parents still should monitor them. "Assuming there's a regular channel of communication, ask for periodic updates," Heckman advises. "In most cases that will be enough."
And, if teenagers make a mistake, "They pay the penalty," says Heckman. "Don't bail them out."