Teach young adults to build power of good credit

By Jennifer Panther - Special to The Herad

Teaching young adults how to manage their credit wisely before they venture out into the real world is important with today's economy in such a mess.

With the economy being at such a low point, young adults need to learn how to build and maintain good credit.

Before helping your child establish credit, teach them about credit. Explain to them the concept of credit, the responsibilities that come with using credit, and the reason credit is out there.

Start by showing them one of your credit card statements. Show them how to read it, how the interest accrues, and how late fees and over-limit fees can apply. Stress to them that every swipe of their card will count and appear on the statement.

Credit card companies are not looking out for your children; they are counting on their immaturity and their brainless mistakes. Fees and interest, interest and fees — it is all the same to a credit card company.

Explain to them the importance of paying the balance in full every month and not just making that minimum payment. Carrying a credit card balance is not a wise idea and can be expensive.

Provide an example: A $25 pair of jeans could end up costing $35 if they do not pay that month's credit card balance in full. People need to understand that a credit card is not a crutch but a convenience.

Don't spend money you don't have. Stress this to your child. If they don't have the money now, they probably will not have the money when the bill comes.

Encourage them to spend their money wisely. This also is a good time to discuss budgeting, saving and being smart with their money.

If your child is trying to establish credit, and you are comfortable with adding him as an authorized user, contact your credit card issuer to see what the process is. Some credit card issuers will allow you to have an authorized user.

Remember, just because you add your child as an authorized user doesn't mean you have to give him a card or give him access to the account. Only do what you feel most comfortable with.

If you decide to add your child as an authorized user, and you give him a credit card to use, make sure you take the time to discuss the responsibilities of using credit. Discuss using this card only for emergencies or for gas.

Be specific when giving out the terms. You don't want to be surprised one day when the bill comes and it is $500 more than what you were expecting. You are responsible for the paying this debt back, not your child.

Make sure that you discuss credit reports with your child. He needs to know how to read a credit report and how to pull it at least once a year.

One of the most important things you can do as a parent is be a good role model. Educate your children to follow the right steps in building and maintaining successful credit.