We learned these two life-changers for our teens by accident. To give away the punchline: Get them a credit card in their own name but tied to yours; and help them pick out and feed a mutual fund account early. When they get to their early twenties, you will be shocked at how high their credit score and borrowing power will be; and they may well have a down payment for their first home purchase.
We added our teens to our credit card account when they turned sixteen (their cards were in their own names with unique card numbers). Our thought was purely to create a convenience for ourselves: an easy way to pay for the things we agreed to help them with and peace of mind that they had a source of funds in an emergency. Our teens respected the limits. In our case, that was gasoline (to run the very old car they shared) and a few other school related fees, choir uniforms, and the like. At the end of the month, they had always used their cards for something and we made sure to pay the full balance off on time. We activated the text alerts offered by the credit card company, so we got a text every time they made a purchase. We also benefited from the company’s fraud detection system--each of us in the family at different times had our cards hacked, but the fraudulent charges were flagged, reversed, and the company sent out new cards immediately.
Around the same time, we helped our teens pick out a mutual fund they felt some connection to. We are not especially savvy in this area but didn’t sweat it too much. One daughter, for example, thought she might go into a medical field. She picked out a mutual fund with medical technology and device companies. She fed her account with birthday and holiday gift monies and small amounts from each paycheck—her teacher in a business course in high school helped her get her first job and she has never been without one since.
Fast forward eight to ten years. With the simple use of the card for small monthly purchases, our teens arrived into their early to mid-twenties with credit scores in the high 700’s. It helped that they did not have debt (a topic for another blog). Their mutual funds grew over that same time larger than the amount of their contributions, so they turned their small savings into a small down payment for a home. First time home buyer loan programs with small down payment requirements took them the rest of the way to buying a home instead of parting with rent money every month that doesn’t grow an asset.
Disclaimer: I’m not recommending any particular mutual fund or vouching for the future performance of the markets or any investments. I’m also not promising teens respecting limits, protection from credit card fraud, or a good credit score. I am just sharing two accidental “gifts” we gave our teens that turned out to be life changers.