An Important Lesson for Young Adults Before They Leave Home

Young adults learn many things over the years, but there’s one lesson they shouldn’t forget before they head to college or they set off on their own – how to manage credit.

We’ve all heard stories of young adults who get in way over their heads, and often the blame falls on credit card debt. They sometimes are lured by the ability to purchase coveted items, or even simply by the short-term prospect of living more comfortably.

Conventional wisdom might tell you that young adults should avoid using credit cards altogether. But if used correctly, a credit card can help teach financial lessons, while helping them establish a good credit history.

New credit card laws have also made it a must for parents to teach these lessons to their children since those under the age of 21 must show their ability to repay their debt or will be required to have a co-applicant or co-signer on the account. Whether you are a parent who is helping your children manage their first account or a responsible young adult who is considering getting a credit card, here are a few things to consider before you get going:

  • Look for a card designed for someone new to credit that offers tools to learn about money management. While parents should teach their children about how a credit card works, card providers like Wells Fargo offer online credit card education materials that can be reviewed at any time. Wells Fargo also sponsors money management lessons at handsonbanking.org that are taught in classrooms and community centers across the United States.\
  • Young adults need to understand that credit cards are loans that need to be paid back. A great introductory lesson for them as they learn to manage their card is to use it to buy books or another necessary purchase. Even if mom and dad are paying for the items purchased, parents can use this as an example of how to build credit by using a credit card for a planned purchase that you can afford; then paying the bill off by the due date to avoid being charged interest.
  • Parents may wish to schedule monthly or quarterly check-ins with their young adult to discuss how the card is being used. Parents who worry that this will feel like prying too much into how their children are spending their money should focus only on whether payments are being made on time and whether the balance is kept in check, not on what is being purchased. Once your children demonstrate responsible use, check-ins can become less frequent, eventually disappearing altogether with good credit behavior.

Building credit history is one more step in the road to independence. Lenders, landlords and employers use credit reports, so a solid credit history will help when young adults need a loan to purchase a car, rent an apartment or even find a job. Learning how to manage credit wisely today will pay off tomorrow and well into the future.
Darryl Montgomery is a region president for Wells Fargo in Houston, Texas.