My teens are starting part-time jobs and asking questions about credit. What should I be telling them about money?

Answer: When your son or daughter starts asking questions about credit, start the conversation with a talk about having a savings and spending plan then add the role of credit.

Here are some topics you could consider discussing, and activities to help the conversations.

It’s less expensive to save for big purchases than finance them with high-interest credit.

  • Discuss how having a savings and spending plan can help them reach their goals.
  • Using the Credit Card Repayment Calculator at federalreserve.gov, show your teens how long it could take to repay a $1,000 credit card debt by making the minimum monthly payments.
  • Talk about how repaying a credit card in full every month can help them avoid interest payments.

How you use credit today will affect your ability to get credit in the future.

  • Paying bills late can hurt your credit score. Having a poor credit score could cause you to pay more for credit in the future as well as possibly affect your insurance costs, deposits for utilities and your ability to get a job. See how to get and keep a good credit score.
  • You should check your credit reports at least once every 12 months at annualcreditreport.com to make sure it doesn’t contain any mistakes. Your credit score is based on information in your credit reports. Getting your credit reports regularly will also help you avoid identity theft.
  • If you think you might carry a balance, shop for credit cards with low interest rates and no annual fees.
  • When a parent cosigns for a credit card, any late payments will also affect their credit history.

Your first paycheck may seem smaller than expected since money is taken out for taxes.

  • Discuss the difference between gross pay (before taxes are taken out) and net pay (the amount you take home).
  • Explain that the W-4 form, which you fill out when starting a job, determines the amount of taxes taken out of a paycheck.
  • Explain that tax brackets vary depending on how much you earn.
  • Discuss what taxes pay for, including schools, road maintenance, and medical help for the elderly.
  • Once your children have steady jobs, help them set up automatic savings programs so at least 10 percent of earnings goes directly into their savings accounts.

For more money activities for your child, visit our Money As You Grow section.

 

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