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Give Your Careless Teen Some Credit

Here at The Motley Fool, we're celebrating back-to-school days with financial advice for parents, kids, and students of all ages. Check out the entire curriculum right here.

Every high school senior needs a brand-new, red hot, supercharged Mustang convertible and a credit card.

Catch your breath, parents. I'm kidding about the car. But you're not off the hook, because I'm not kidding about the credit card.

Playing with fire
Yes, I know, there are a million good reasons why a 17-year-old who can't remember to get his dirty clothes into the hamper despite being told every single day should not have a credit card. Ten hours a week delivering pizza pays almost nothing. He can never remember where he put his wallet, let alone where he spent his money. His room looks like it's been tossed by a pack of angry Tasmanian devils, and he'll never find a credit card bill in there.

All good points. Here's the problem. When your high school senior leaves home in a year for college, he will be besieged by credit card offers. He will succumb to temptation. And, he will still be dumping his clothes on the floor and losing his wallet.

But if he gets a little experience under his belt before he leaves home, he may avoid making some major mistakes, such as charging a year's worth of beer and pizza and paying for it at 26% interest until he's 35 years old.

Better sooner than later
If your teenager has experience with credit, the tantalizing applications promising free money may not be as tempting. You want him to hear your faint voice in his ear, whispering credit card admonitions, when he pulls out the plastic. Remember the first time you watched a movie with a few naughty parts while sitting alongside your parents? Remember squirming a little, and thinking it kind of ruined the fun? That's the idea.

You can start by introducing your teen to credit using cards backed up by real money. Money doesn't grow on trees, you know. A debit card can make that point. If your teenager has a part-time job, a debit card attached to a checking account can accomplish the goal. Your teenager will learn how to manage a financial account and get used to paying with plastic without breaking the bank.

If your teen doesn't have any income of her own, you might look into a prepaid debit card. Visa and MasterCard (NYSE: MA  ) offer variations, including some, like the Visa Buxx card, specifically marketed for teens. They allow a parent to put money in an account that's drawn down when the card gets used. That can help a teen get accustomed to purchasing with a spending limit in mind. But beware of the fees that sometimes accompany these cards.

Going all the way
While debit cards simulate paying with credit, they don't give a teenager the complete and (often) completely confusing experience that comes with using a credit card. There are no payment terms, late fees, interest rates, or escalating balances.

If you want to introduce your teen to the full experience of credit, you can make him an authorized user on your credit card. That can get complicated if you want your teenager to assume full management of the account.

In that case, you might arrange a secured credit card backed by a savings account. Or, you can set up a joint account. Neither will be a good idea if you parachute into every emergency with a handful of cash, ready to pay for your teenager's mistakes.

This may seem like a lot of work for a little educational benefit, but remember that it's easy to damage your credit and very difficult to rebuild it. Besides, when your college freshman calls asking for a loan to pay off the credit card, you'll have earned your right to say, "I told you so."

Related Foolishness:

Learn how to manage your credit more efficiently with tips from our personal finance newsletter, Motley Fool Green Light. It's completely free for the first month, and you'll discover everything you need to know to get out of debt and start a savings plan.

Fool contributor Mary Dalrymple does not own stock in any company mentioned in this article. She welcomes your feedback. The Motley Fool's disclosure policy is all grown up.


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