One of the worst mistakes that you can do is to accidently convince your kids that a credit card is free money. Here is what you can do to teach them the dangers of using a credit card.
Give them an allowance. Make sure they earn it of course. Then when they want something that they do not have the money for, explain to them how a credit card works and give them a credit card issued by the Bank of Mom and Dad. Have a 15% annual interest rate and a $10 monthly fee for not paying off the card. Set a reasonable credit limit. Each month, hand them a bill with a 30 day grace period.
Now, when they are late or cannot pay the bill off in full, charge them the penalties. They will see that the more they charge, the less money they have. The less money they have, the less they can buy or the further in debt they go. When they hit their credit limit, cut them off. Now they cannot afford anything and must focus on paying off their debt. Harsh lesson for a teen on a Friday night.
This will take will power from the parent. Keep that credit limit to around $100. If you are working with teen agers, make it a bit higher if you think it is appropriate. Once they go a year without missing a payment, offer them 12% APR. If they go a year paying off their card in full each month, Give them a one time bonus in their allowance to help encourage them to spend their money wisely. The idea with the bonus is, do they spend it on garbage or think about how to invest it.
No comments:
Post a Comment