Here's what every parent can do:
- Set a good example. You, no doubt, spend plenty of time imparting all your moral and ethical wisdom, but do you realize your kids are also learning the financial ropes by watching your spending habits? If you handle credit responsibly, chances are they will, too.
- Start them off with a card tied to your account. When your child is 15 or 16, consider adding them to your account. There are multiple advantages to this. They inherit your credit rating. Assuming your FICO score is good, you are setting up your kids to have great scores by the time they want to apply for their own cards when they're older. Plus, you'll see all the charges. And it's up to you to set the rules: They can spend X dollars a month for specific charges you're willing to cover, but everything else must be paid out of their own pockets. Schedule a time each month to sit down and go over the bill together. If they don't have the cash to cover their charges, then you have a great opportunity to teach them about the cost of running a balance.
- If you don't want to add them to your card, start them out with a secured credit card. It looks and feels like a card, but it is secured by money already paid to the card issuer to cover the bills, so there's no way they can spend more than they have.
- Get your kids credit cards before they leave home. That way there's no need for them to be tempted by all the card offers they will encounter at college. Request that the credit limit be kept very low, say $500 or $1,000, so there's less chance of any big problems. If you choose to cosign the application, make sure you can receive a copy of the monthly bill. But beware: You'll also be financially responsible if your child does run up a balance.