Up until recently the prevailing school of thought regarding teenagers and credit cards was to make sure your teenager had a credit card before college so they could learn how to be financially responsible with credit. Experience has taught us that this may not be the best route towards teaching your teen financial responsibility.

Studies have shown that teens with credit cards are less sensitive to prices, spend more, and overestimate their available funds when compared to teens who use cash or write checks. What is it that makes teens so vulnerable to credit card traps? It appears to be a lack of knowledge. Most simply do not understand how a credit card works nor do they comprehend the reality of taking on debt.

The best course of action is to educate your teen about money matters. They need to understand that a credit card does not mean free money - rather the money is borrowed and in exchange you pay a high rate of interest on this borrowed money.

A good way to educate your teen about money is to open a checking account for your teen that comes with a debit card. They can fund the account with their allowance or earnings from their summer/parttime jobs. In this way they get the gist of using a credit card when they use their debit card, but now they are also learning to balance a checkbook and the value of money - as each purchase comes directly from their earnings.

As they are learning to be financially responsible with their own cash, teach them about credit and the possible traps they can fall into if they are not careful. Talk with your teen about how a credit card works, how important it is to pay your bill on time, how interest rates work, etc. Show them how easy it is to fall into debt by using an online debt calculator to demonstrate how a mere $1000 balance on a credit card at 15% interest translates into more than six years of debt if you just pay the minimums.

You can be your child's best resource for financial information. Empower them with knowledge now so that later, when it is more appropriate for them to have their own credit cards, they will make responsible financial decisions and avoid falling into the trap of debt.