Friday focus: Personal finance

The best way to teach youngsters how to use credit responsibly is to let your son or daughter learn to manage cash responsibly.

If you give your children an allowance or they have earnings from a job, require them to spend their own money on trips to the mall or for a weekend movie or burgers.

As they develop good habits, a debit card on their checking account might be in order so they can tap the ATM for their own money.

That doesn’t mean you can’t cover some of their expenses, but don’t be slapping a $20 bill – or the family credit card – into their palms every time they head out the door.

Time and again, surveys show that youngsters do a much better job of handling money if theirs is on the line, not yours.

New “family credit cards” that parents and children can use would not begin establishing credit for that young adult, said Bill Hardekopf, chief executive of LowCards.com, an online resource business that monitors the credit card industry.

“One of the greatest things about getting a young adult their own credit card is that they begin to build some credit history and a credit score of their own,” Hardekopf said.

“This can certainly help them when they graduate college and get out on their own, but putting them on a family card would probably not begin to establish” their own credit identity.

Hardekopf also worried that all members of the family could be negatively affected if something goes wrong with the account. For example, what if your teen charges eight stereo systems to the account and those cannot be paid off?

“With my credit card,” he said, “I know my credit limit and have a pretty good idea how much I am charging on the account each month. If everyone in my family is charging things on this one family card, I would probably have no idea if we are exceeding our credit limit.

“And if we do, we’ll be charged an over-the-limit fee and our annual percentage rate will almost certainly get increased right away.”

Kansas City Star