Finance and the Adolescent
Once your kids are teenagers, they're ready for investments and credit cards. Introduce investments first as a natural add-on to their savings account. Then add the credit card so that they have good spending and debt-management habits established before they leave home.
Teaching kids about investing is fun. Whether you're a beginner or an advanced investor yourself, getting your kids involved can be a great learning experience for both of you. Start younger teens with simple mutual funds. Try a target date fund so that their smaller deposits are allocated automatically across the diversified investments in the fund. Include kids in the investment review part of your monthly money meetings and ask them to do research on new funds.
Older teens and college students are ready for brokerage accounts. Have them set up accounts using your address as the residence so statements are not chasing them around their colleges; they can access the account online. You can list yourself on an account as the guardian without it being a joint account. Remember that colleges consider the child's assets in calculating for financial aid benefits, so much of his account will be tapped for tuition.
Your teens will start receiving credit card solicitations almost immediately upon arriving at college, if not earlier, so it's wise to start teaching them good credit management while they are still home. Telling them to use a card only for emergencies, or not to get a card, is not an option. Credit cards are a fact of life like all the others you've taught them by now. You need credit to rent an apartment, turn on utilities, and rent a car. Most kids go from the college financial aid office, where they've just received what feels to them like play money to pay for college, to the bookstore, where the credit card applications are waiting. This can make credit cards feel like free money, too, unless they've already learned sound credit card habits from you.
Start your child with a low-limit credit card. Check
Sit down with your child and explain how to read the credit card statement online and in hard copy. Decide what charges will go on the card. Focus on using the card for convenience — e.g., to charge DVD rentals or order merchandise online — and insist that the balance be paid off each month. Be ready for your teen to start receiving solicitations in the mail as she gets close to her eighteenth birthday. Once she has a card of her own, close the one you cosigned. Make sure she keeps your address as the residential address for the credit card and have her reconcile and pay the card using online access.