Tips for teaching good credit habits to young adults

February 21, 2013 (Press-News.org) Every generation has their own unique set of challenges to face as they transition into adulthood and head out into the world. For today's young people, the aftermath of the Great Recession has left them facing a very difficult and unpredictable job market. Those that can find jobs often end up working outside of their degrees and for much less money than they deserve.

Combine all of this uncertainty with the ever-increasing cost of higher education, and it is easy to see why so many young people are falling into economic hardship. With financial stability seeming out of reach, many twenty-somethings are turning to credit cards to make ends meet.

This can have dangerous consequences. While credit cards are an important financial tool, overreliance can quickly spiral into unmanageable debt and even bankruptcy.

Many times, young people get into trouble because they do not understand how credit cards work. Parents can help by teaching their children about responsible credit habits, starting with the following tips:

- Get credit before you need it: Establishing good credit takes time. Young adults would be wise to build their credit over time by getting a credit card, making small purchases and paying off the bill in full every month. This way, there is a better chance of getting a good interest rate if they want to take out a mortgage or auto loan, or even make a major purchase on a credit card.

- Separate wants from needs: Sometimes it is necessary to carry a balance on a credit card, but this should only be done in emergency situations. It may be okay to charge a car repair and pay it off over the course of a few months, but it's not okay to do this for a new outfit or an expensive night out. Teach your kids that if they can't pay for a "want" in cash, they shouldn't buy it at all.

- Understand the terms: When your child gets his or her first credit card, sit down and walk through the terms of the agreement together. Make sure your child understands how interest works and what will happen if he or she has a missed or late payment.

- Emphasize honesty: As a society, we don't always do a good job of talking openly and honestly about money. Let your child know that he or she can come to you with any questions or problems. Too often, issues magnify because people are ashamed to talk about them.

It is never too early to teach children about good financial habits. By having these conversations -- and by modeling good habits yourself -- you can help ensure that your children will know how to make good credit choices when they head off on their own.

Article provided by Edwin L Feld & Associates, LLC
Visit us at www.edfeldlaw.com/