Don't Wait to Talk About Debt

As your child starts their senior year, they may be pushing for more independence. Now is a good time start a conversation about one of the perils of financial independence: debt.

Preparing teens for financial independence is an awesome parental responsibility, particularly in these times of instant gratification and easy credit access. Talking to teens about money is tough. Often, the subject isn't broached until it has already become a bone of contention between parent and child.

You don't want their first introduction to personal finance to come once they're on their own and surrounded by credit card offers. Credit cards -- and the things they can buy -- can be very tempting to new college students.

Consumer debt is a mounting problem among teens and young adults, the population most aggressively marketed to by credit card companies.

Of course, credit cards are also a wonderful convenience. Our kids will need to learn to use them to establish a line of credit and qualify for an automobile or homeowner's loan one day. So, how do we prepare them for responsible credit card use? One way is to introduce them to using banking services early, under parental guidance, while they are still at home.

It's good to start with a savings account around age 12. Some parents encourage kids to add to their savings accounts by increasing their allowances, while others match their child's savings from all sources, including odd jobs and gifts. For most youth or student savings accounts, a parent must co-sign when making a withdrawal. That provides an opportunity for parental guidance from the start.

Once the savings habit is in place, a youth checking account with a debit card feature is a good next step on the road to responsible and convenient financial management. Some parents encourage their kids to open these accounts when they start their first part-time job, while others deposit their children's allowances directly into the accounts.

With a savings account in place, it is easier to promote budget planning where a predetermined proportional amount, say 25 percent, of each paycheck or allowance goes directly into the savings account, 50 percent in the checking account for larger ongoing expenditures like clothes or gas, and 25 percent is cash for pocket money. With the debit card, they can take advantage of bargain-rate catalog or Internet shopping and get experience using a bank card against money they already have.

Some parents prefer to wait until their child is starting college and the checking account becomes a college account. Of course, if you wait until they are away at college, you may have missed an important opportunity to be more directly involved in the learning process.

Not all student or youth checking accounts are equal. Features like minimum balance, bank charges, interest and overdraft protection can vary greatly among banks. Free online checking, which allows both parent and student access to expenditure and balance information at any time, is a must. Also, if overdraft protection is available, be sure the savings account that provides overdraft funds is your child's own personal savings account, not yours. Serious consumer product research at the front end of the process can save you a lot of grief (not to mention money) later on.

When is the best time for your children to get their first credit cards? That would be when they have proven their ability to manage finances responsibly.