How to Keep Teens Debt Free

Teenagers are a marketer's dream. They have to have the latest and the greatest, and this fact is not lost on advertisers. It's no wonder that by the time teenagers finish their first year in college they find themselves in a load of debt, which is often left to their parents to pay. Educating your teen and giving her financial responsibility are ways to ultimately keep your wallet a little bit fatter.

Instructions

Difficulty: Moderately Challenging

1. Share your knowledge with your teen. Teaching your teen financial basics is another area of parenting where you must be actively involved and committed. A teenager should be educated and experienced in earning, saving, spending and paying bills before he turns 18 and heads out on his own, either to college or the workforce.
2. Fashion a realistic budget with your teen. Explain the importance of spending only as much as she has and of maintaining a savings account for emergencies. Encourage her to obtain a job, either earning money around the house or outside employment, so that she can spend and save her own money.
3. Open a checking account for your teen. Take him to the bank and teach him how this is done. He can then learn the essential skills for writing checks and balancing a checkbook.
4. Hand over the debit card. Once your teen has worked with her checkbook for a few months and has shown you that she can be responsible with writing checks and managing the ledger, she should get used to paying for purchases with a debit card. It looks and feels like using a credit card, but is directly linked to her checking account.
5. Move on to the credit card. This may sound crazy, but when your teen gets to college, he will be bombarded with credit card offers that will entice him to spend "free money." Give him a card that is under your name so that you can monitor and place limits on his purchases. Explain to him how you buy 1 month and pay in full the next, and teach him about interest and late fees.
6. Prepare your teen for her own credit card. Once you feel confident that she won't run up a mountain of debt, if she has kept her purchases within the limits and free of finance charges, show her how to shop around for the best rates and fees. She should now have a solid foundation for keeping herself debt free.

Tips & Warnings

• Encourage your teen to pay cash, use her debit card or write a check for as many purchases as possible. She will not spend as much and the temptation to spend more than she earns is taken away.
• Limit the number of credit cards to only 1.