Keep Your Teens From Swiping Away At Your Credit Cards This Summer!

May 27, 2008

COLUMBUS, Ga. (WXTX) - It seems swiping is the way to spend. And not just for working adults.

A new poll from Junior Achievement and Allstate reveals there's been a steady spike in the number of teens who use credit cards.

Of those polled, there was a 10% increase this year, followed by eight% in 2007.

What do teenagers buy the most?? It's not clothes or food, but like others feeling the pinch at the pump --- gas.

That's right, 70% of teens say they use a credit card to fill up.

Regardless of what they're buying, some experts say the bigger question is who's footing the bill?

And in many cases it's the parents. If the money's coming out of your pocket, there are some guidelines you can set for your teenager.

One expert says it starts with communication.

Investment broker and financial advisor Terry Barnhardt says that conversation should include information about basic budgeting and planning. "When do we start actually learning how to use money and what money's all about, basically, it's a parental thing, there's no courses in a school at all."

Plus, a childs credit card should have a low limit.

"Let's be realistic, some, most kids don't need a credit card if we're taking high school or even freshman or sophmore in college, 500 to a thousand-dollars," added Barnhardt.

And finally, have them keep all receipts.

Barnhardt's tip: "Keep an envelope in the truck or car or whatever, they're driving. But each and every time the bill comes in, they can absolutely compare them, so they can show them, here's what you bought on this day, this is real and this is it."

The Georgia Society of CPAs advises that the teen years are a great time to introduce children to the rules for managing debt. 

Young adults are swamped with advertisements for credit cards as soon as they enter college, and many don't know how to say "no." It's estimated that undergraduates are carrying an average outstanding balance on their credit cards of $2,100. Between credit card debt and hefty student loan balances, young people often struggle to cover all their payments.

Let your child know that there's nothing wrong with credit. It's a useful tool that can make it possible for people to buy a home or finance purchases of cars, appliances--even a child's college education. However, remind your kids that this privilege also comes with a responsibility to spend wisely and make the necessary payments when they come due.

The next time you receive a credit card offer, sit down with your child and explain how it works. In particular, show him or her how to find the interest rate and any other fees associated with the card. Explain that if you don't pay off a balance immediately, anything you buy will eventually cost you more than the sticker price because of the interest charged.

Your next step is to show them how interest works. Many online sites contain calculators that reveal the real cost of debt and how long it takes to pay off a purchase if you pay only the minimum amount due. Your teen will quickly see the cost of charging a purchase rather than paying it with a debit card or cash.

After you've explained interest rates and shown some examples of how they work, let your teen test out a credit card. One way is to get a prepaid spending card that your teen can use to spend a limited amount and no more. Next time you go clothes shopping, hand your teen one of these cards and let him or her make decisions about how to spend the preset amount. It's a great way for your teen to learn how to budget while becoming familiar with using a credit card. Another advantage to these cards is that there's no interest on your purchases, since they are paid for in advance.

The 360 Degrees of Financial Literacy program-a public service effort created by the CPA profession-has a treasure trove of information on teaching your children to spend wisely. The "Childhood" section of the Web site,, contains articles on topics such as teaching teens about money, investments and how to manage their summer earnings. 

And don't forget to consult your local CPA for any advice you need on financial issues facing your family. The teenage years are the best time to teach your children about using debt wisely, and your CPA can offer the advice you need to help them get the right start. Some helpful ideas from an expert can prevent bad spending decisions later on in life.