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- Every time you make a purchase with a card, you are taking out a loan.
- There is a high price for this loan; it's called interest. If you make minimum payments, you will take almost eight years to repay a $1,000 purchase on a card charging 18 percent interest.
- The only way to avoid interest is to pay the full balance each month. Except for true emergencies, that's what should happen.
- One credit card is enough.
Start your teen off with a debit card on his checking account or a second card on your own account.
Manage a Paycheck
Teens learn a lot about responsibility and independence by holding down a job. They also see how taxes shrink their take-home pay and how many hours of work it takes to buy a car or a new outfit. Just be careful it isn't too much of a good thing. School should be the first priority, so put a limit (say, 10 to 20 hours a week) on outside work.
Save and Invest Wisely
When it comes to investing, teens have a huge advantage over their parents: time. The magic of compounding is dramatic when you start saving young. A 15-year old who invests $2,000 a year in a Roth IRA for just 5 years (until age19) will have almost $1 million tax-free at age 65.
Diversified no-load mutual funds, such as the Vanguard Total Stock Market Index, are great choices for Roth IRAs. T. Rowe Price will allow you to start an account for $50 a month.