Often times, credit card trouble derives from nothing more than forgetting how credit card debt can sneak up on you.  The first time you maxed out a card and then dealt with the overwhelming task of paying off the charges in order to get back on solid financial footing, it was difficult and yet a valuable lesson.  Going through this experience, attending the school of hard knocks, teaches that it’s easier to prevent credit card debt than to recover, once you’ve gotten into trouble.

Of course, one of the most valuable results about acquiring such hard won knowledge is that you can pass it along to your children.  So just how do you help your kids establish a good foundation with their credit and help them learn how to use it responsibly?  Your children depend on you as their parent to teach them how to function as a responsible adult.

The first thing to remember is that effectively teaching your children to use credit effectively is not the same thing as preventing them from acquiring credit.  The reality is that the opposite is true.  Responsibly handling a credit card is just as essential a tool for modern living as owning a car or a cell phone.  In fact, sending a child out into the world without a working credit card and a respectable credit rating beginning to build; without training them to use credit is actually irresponsible parenting.  It is nearly the same as sending a child into battle without a weapon to defend himself.  Credit is essential but the wise use of credit is even more important.

A parent can help their child understand the basics of good credit by providing them with a credit card as early as high school.  Even if a parent pays the bills, this will educate them in using a card responsibly to pay for necessities, and a parent can track of the child’s spending from the monthly bills.  If the credit card is in the child’s name and gets paid off each month, the child will build up a good credit rating.  Consider it another one of the many legacies you are passing along to your kids.

In order to make sure that a child doesn’t spend irresponsibly, work with the credit card company — set a credit limit for the child’s spending each month. That way, if they overspend and suddenly cannot buy lunch because they abused their credit, several hours of going hungry will teach them much more than a week of lectures about fiscal responsibility.

It’s also important to make sure your child is aware that your paying their bills is a privilege and that they are fortunate to be able to start their independent life in this way.  Then give them three responsibilities they must complete to show they are worthy of this privilege.

Tell your child that he must save all receipts of every purchase made.  If they purchase an item and forget to ask for a receipt, tell them that they must make one.

Require them to maintain a ledger of spending.   Like a checkbook ledger, it should be filled in every time they buy something and a running total kept up-to-date.   If an expense is not entered, they will be required to pay that amount back to you or possibly lose their credit card privilege.

Sit down with your child once each week and go over the credit card bill. Have them explain item by item about each entry. Practicing these simple habits over several months will teach your child how to keep track of, monitor and be aware of their spending on a credit card.  In that way, when they are ready to start their adult life, they will not only have the credit necessary, but will also be able to wisely use that credit.