Good Credit Practices for Teens

It can drive a parent crazy: a child getting a credit card without permission and racking up an enormous bill.

But soon this will be less likely, as new credit card rules take effect Feb. 22 and will make it harder for people under 21 to get cards. Under the CARD Act passed last year, these young people will either have to get a parent’s permission or show they have independent income.

Of course, it’s not entirely bad for young people to have the tools they need to live in today’s world, where plastic has largely replaced cash, and where checkbooks seem like something out of a previous century. So, what’s the best way to set a child up and make sure spending stays under control?

For parents, there are two strategies: keeping control and instilling good habits.

For control, the parent can insist on having online access to the credit card account, in order to keep abreast of spending. Remember, too, that you can set a credit limit lower than the maximum the card company would approve. These days, many card companies also allow account holders to sign up for automatic alerts when certain spending limits are reached.

Another way to keep control is to let the child have a debit card rather than a credit card. Debit cards draw on balances in checking accounts. If you opt out of overdraft protection, you won’t have to worry that your son or daughter will rack up big fees for excessive spending.

With a debit card, you can control the cash in the account, setting a firm monthly budget. You could even transfer money out of the account if spending gets out of hand, or keep cash levels low, only putting extra money in for special purposes like paying for the child’s airfare home.

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