When it’s time for your teen to start spending their own money,
it’s important to explain to them the difference between the various types of
plastic that are used for transactions. Here are a few main points to teach
your teenagers about plastic tender:
Debit Cards
Debit cards are linked to a checking account and behave exactly
like a check. When you swipe the debit card, the charge is subtracted from your
checking account and sent to the vendor. Debit cards transactions may be
rejected if there’s not enough money in your account, so it’s important to keep
track of your balance before swiping your card. Depending on the bank account rules,
your purchase may be paid even if you don’t have enough funds, but you may be
charged a costly overdraft fee.
Reloadable Prepaid Card
A prepaid card is a great starter card for a teenager because
it allows the parent to set spending limits by adding a set amount of money to
the card. A parent can easily put a monthly allowance onto the prepaid card,
giving the child the opportunity to get used to
using plastic tender without putting themselves into debt. Many banks and
credit an online card services like this
website offer this type of card for students
because it is a good way to develop positive spending habits, while allowing
for flexible spending at a variety of vendors. There is no fear of affecting
the teen’s credit or running up overdraft fees, because all money on the
card is pre-deposited from another account.
Credit Cards
When you use credit cards to pay for purchases, you are buying
something today with a promise that you will pay the creditor back for it
later. Using a credit card is basically taking out a loan to pay for the item.
If you do not pay your entire balance by the statement date, the credit card
company will charge you interest on the total amount you owe them. Since credit
cards charge high interest, the best way to manage a credit card account well
is to pay off the entire balance every month. It’s a good idea to set aside a
certain minimum balance in your checking account that is equal to your total
credit line on your credit cards. This way, no matter how much you charge on
your card during the month, there will always be enough to pay it off all the
way at the end of the billing cycle. Paying only the minimum payment due will
mean that over time you will pay much more than the original value of your
purchases.
Keep in mind that if your teen doesn’t understand the
difference between debit cards, credit cards and prepaid cards, it will be very
difficult for them to learn the proper way to use their cards so they can be
financially responsible. However, if you educate them about the way to handle
the various types of plastic payments, your teen will soon be managing their
money like a pro.
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