Teens are an appealing target for credit card issuers, but you should not allow your teen to have a credit card until you're sure she understands how to use credit responsibly. Teens who think of credit cards as "free money" and fail to consider how they will repay their purchases are likely to end up in serious financial trouble as young adults.
Credit Card Vocabulary
Reading the fine print on a credit card offer is an important part of using credit responsibly, but many teens don't know what terms such as co-signer, cash advance, finance charge, grace period, annual percentage rate and joint account really mean. Write the names of common terms used on credit card applications on a stack of index cards. Write the definitions for the terms on another stack of index cards. Challenge your teen to correctly match all of the terms and definitions.
Calculating Payoff Times
Thinking about how long it will take to pay off a purchase helps keep teens from carelessly running up credit card debt. Have your teen use an online calculator to determine how long it would take to pay off a $1,000 balance at 14 percent, 16 percent, 18 percent and 20 percent interest rates if he made only the minimum payment per month. Make a graph that compares this to paying double the minimum payment per month.
Evaluating Credit Card Rewards
Teens often find the idea of accumulating credit card rewards to be tempting, but the value of the rewards they can earn is typically less than what they'll be charged in interest for their purchases. Have your teen go online to research the various credit card perks that are being offered, including cash back offers and rewards points that can be redeemed for different items. Compare the dollar value of the rewards to the interest fees that will accumulate if the cardholder carries a balance.
Playing Online Games
"It Costs What?" from the What's Up in Finance? website is an online game that challenges teens to think about how different ways of using credit cards affects how much people can end up paying for the same item. Players are introduced to four friends who each bought a digital music player costing $350. The friends ended up paying four different amounts for the same item: $714.86, $514.24, $360.28 and $350.00. Players investigate case files to learn why there is such a difference in the prices the friends paid.
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