Don't Let Your Teen Get Caught in a Credit Crunch

When is it best to teach your children about using credit and borrowing money wisely? The Virginia Society of CPAs advises that the teen years are a great time to introduce children to the rules for managing debt.

Don’t miss out on the opportunity to broach this important topic. 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.

Explain the good and the bad

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 homes or finance 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.

Discuss interest rates and payoff dates

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.

Calculate the difference

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.

Try it out

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.

Use free resources

Virginia CPAs launched the Financial Fitness program to help improve the financial health of Virginians of all ages. Visit www.FinancialFitness.org for articles, tools and tips on a variety of financial topics designed to keep your family on track and help you build a sound financial future.

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.

The Virginia Society of Certified Public Accountants (VSCPA) is the leading professional association dedicated to enhancing the success of CPAs. Founded in 1909, the VSCPA has 9,000 members who work in public accounting, industry, government and education. For general information, please visit the Press Room on the VSCPA website at www.vscpa.com, e-mail vscpa@vscpa.com or call (804) 612-9424. To search for a CPA in your geographic region, visit www.financialfitness.org and click on “Find a CPA.”

©American Institute of Certified Public Accountants

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