According to the National Consumer League (NCL), most teens believe a credit card is an informal agreement to repay money owed. It may seem as if younger people new to the American system of credit do not perceive it to be as serious (or binding) as it can be to important purchases in the future.

Apparently they don't. Money Wise, a consumer finance education resource, reports that the average balance on credit card held by college sophomores is $2169. With 76% of college sophomores owning at least one credit card if not more, a significant proportion of teens and young adults are entering the world of credit on risky footing.

Much like savings, spending, and earnings allocation, most teens are learning or modeling their credit behavior around their parents (see other budgeting-help.com for articles on teen savings and earning for more information). The NCL also reports that families carry $9000 in credit card debt on average.

Parents can be a key source for teens to understand how to manage credit wisely. With any aspect of financial management, starting early in life will only help them become credit savvy in the future:

• Familiarize children with idea of credit by showing your credit card statement and explaining different elements of credit

• The Credit Union National Association offers a model of credit that parents can engage their children after they have learned about concepts related to savings. A parent can provide a "credit" for half the cost of a toy or item a child would like to purchase, with a caveat that the credit must be repaid the next he or she receives allowance

• Allow teens to model credit card use by using debit-ATM cards. In this way, they (and you) will avoid high interest rates and fees. If the card is from an account they started themselves, they will also receive statements that model spending with a credit card

• With college-age teens, a credit card may be a good idea to help them develop good credit early. As a low-risk start, secured student card will limit available credit based on the amount used to secure the card. A parent can secure a card with a credit line of a few hundred dollars.

• When teens obtain their own credit cards or lines of credit, they should be aware of some basic steps to maintain good credit (or be reminded of them when they are considering using their credit on a purchase that can wait), including making payments on time that are above the minimum payment due. Since bad credit has negative impact on future credit options, ensuring on-time payment and low balances will ensure basic reporting.  Additionally, parents should advise their children to obtain a copy of their credit report annually to ensure their credit history is being reported accurately.

References

National Consumer League. Teens and Finances 2002 Survey Results: Teens and Financial Education.

Money Wi$e. Talking to Teens About Money.

Space Coast Credit Union. Raising Money-Savvy Kids.