One thing many parents forget to do is to teach their kids about credit management. While some may instill the value of saving and budgeting, how to use credit wisely is often left untouched. To better prepare your child for their financial future make sure your child know a few key concepts about credit.
How To Find The Right Card
Many young adults are tempted into accepting the first credit card offer they receive in the mail. This is often a mistake and they end up with a low limit card with a high interest rate and annual fees. It is important to teach kids about what really goes into the calculation of a monthly payment before they shop around for a credit card. Encourage them to go for the card with the least amount of finance charges and the lowest interest rates.
How To Use Credit Wisely
One thing many parents are guilty of is not using their own credit cards wisely. Explain to kids that a credit card isn’t a tool for convenient spending, but a tool for their financial profile. Kids should learn that credit cards are not for buying what you can’t afford in cash or what you want now and don’t want to wait to save for, but for building a solid credit history that is characterized by low balances and timely payments. Don’t forget the 30% rule; keeping balances under 30% of the total available limit will give them the best bang for their credit buck.
How To Stay Out Of Default
If kids are taught how to manage money and use credit wisely early on, the chances of ending up in default or the need for Ohio bankruptcy are significantly reduced. Kids should also be taught the different options for preventing default and getting out of it, if it does happen. Encourage kids to only charge what they can afford to pay off at the end of the month. Be sure kids put a place for credit card payments into their monthly budget so they can prioritize the payment as any other financial obligation.