How you can help your children avoid debt

The credit card trap
In today's consumer market, plastic rules. As many Canadian youths have a credit card (72 per cent) as have a savings account (74 per cent), according to the FCAC. Teens younger than 18 need permission from a parent before they can start swiping, but as soon as you cosign, they're good to go.

Credit cards are at the root of the debt problem for many young people, says Foran, who has three daughters, ages 11, 13 and 22. "Kids have access to cards in their teens. They get one card with a $500 limit, then they get another offer and take out another card with a $3,000 limit. Then they use one card to pay the minimum on another and get a third card. I've seen this happen so often. It spirals out of control."

Until the age of 19, Alex Campbell of Toronto paid for everything in cash. "If I didn't have the money, I didn't buy it," he says. But when he got his first credit card, he treated it like an ATM machine. "Plastic didn't seem like real money," he says. Over four years, Alex racked up $7,500. He put off going to university until he could make a dent in his debt, but when he finally started at the University of Toronto last fall, three-quarters of his part-time earnings were still going to paying off his bills.

Avoid the trap
"There's nothing wrong with a kid having a card with a $500 limit to teach him responsibility, but he should have a part-time job and should see that credit card statement come in every month and pay it off," says Foran. "If he can't pay it off, he should at least be aware of the interest he's incurring."

That's advice Roxanne Ramedani could have used when she applied for her first credit card last year at age 17, with her parents cosigning. "I thought that as long as I made a payment, they wouldn't charge me interest on the balance," says the Toronto teen. "Then I got overwhelmed by the whole interest thing, and ended up owing $1,000." Her advice to other young people: "Do more research and make sure you understand what you're signing."

Better still, stick to cash. "We're big promoters of cash only," says Robyn Gunn, one of the authors of The Smart Cookies' Guide to Making More Dough (Random House, 2008). "If you can stick with the cash system, you get into a lot less trouble." If you cosign a credit card for your teen, keep a close eye on the account and make sure she understands that if she messes up, that puts you in credit trouble too. "If she can't use a credit card responsibly, she's not ready for one," adds Gunn.

Why cell phones and pre-paid cards can be just as harmful to your child's finances as credit cards on page 3.