In the recently signed into law Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD), one of the key provisions is no one under the age of 21 can obtain a credit card unless a parent, legal guardian, or spouse is the primary cardholder (exceptions can be made if the applicant can substantiate certain income requirements in a petition). Without jumping into the pros and cons of this particular portion of CARD (OK, I couldn’t resist – I think the new under 21 restriction is ridiculous if you must know but enough of that) I would like to talk about some of my thoughts on why I will most certainly sign off on allowing my kids to have a credit card as early in life as possible (and why you should maybe consider doing the same).
Be Proactive in Teaching Responsible Credit Card Use
According to Sallie Mae’s 2009 credit card study 84% of all undergraduate college students have at least one credit card and the average number of cards each student has is 4.6. What this says to me is that chances are your child will have a credit card at some point in their life and likely as early as they are able to get their hands on one. This means that your child will either forge their credit card spending habits out on their own OR they will develop credit card spending habits while still under your guidance.
Parents who take a proactive role in teaching their kids how to use credit cards responsibly can play an extremely valuable and much needed part in shaping that child’s understanding of how credit works, how to manage credit responsibly, and how to make credit work for them rather than against them (this way, hopefully your child will never get to the point where they have to freeze their credit cards to ice their spending).
I am of the firm belief that as a parent it is my responsibility to teach my kids how to manage their money properly and how to be a responsible credit card user is certainly a big part of it. My goal is to sit down with my kids at an early age to apply for a credit card and learn how to properly use the card just like I will take them to the bank to open their first savings account at an early age and teach them the value of saving money.
Smart Student Credit Card Use is NOT the Norm
This may not be a shocker to you but most students do not use their credit cards responsibly. According to the afore mentioned Sallie Mae study, only 17% of students with a credit card pay off the balance in full every month. Only 17%! This means that a full 82% of all students with credit cards consistently carry a balance on their credit cards (the other 1% have a parent or family member paying their credit card bills for them).
What this means is that absent some sort of parental guidance (notice I did not say government intervention in the form of legislation restricting credit card use for those age 18-21 but parental guidance), almost all students will get a credit card and will mismanage their credit card by racking up interest charges.
Leaving your kids to learn about credit cards on their own will usually mean that they will end up like most of their peers described in the statistics above. It’s usually too late to unleash your parental personal finance wisdom if you simply ban your kids from having a credit card until they are age 21 and then attempt to talk things through when they may be out on their own thousands of miles away, graduated from school, and working in their new careers.
I will give my kids a credit card when they are in their teens and personally walk them through using the card to earn cash rewards, pay off the balance in full every month, and teach them the dangers of buying things without having money in the bank to pay it off.
Allow Kids to Learn First Hand on a Small Scale and in a Controlled Environment
One of the biggest reasons why I want to give my kids a student credit card at a young age while they are still under my roof is so that they can learn first hand the benefits and the dangers of credit cards but on a small scale and in a controlled environment.
Rather than allowing a student to get their first credit card at the age of 21, my goal is to start my kids out small when they are younger and under my supervision so that they can see both the positives and negatives of credit card use.
Just like many parents work hard to teach their young children the value of budgeting, savings, and giving to others by helping them on a small scale and in a controlled environment, parents can also teach kids responsible credit card use in the same way.
Many new student credit cards are designed with parents in mind too. The Current by Discover Teen Prepaid Debit Card allows parents the ability to restrict a child’s spending in certain categories like tobacco, hotels, alcohol in addition to featuring other built in parental controls so that you can choose just how much responsibility your child is ready to handle.
When Should I Allow My Child to Have a Credit Card?
As a parent the choice is of course up to you as to when you will allow your children to have a credit card but I am firmly convinced that I will allow my children to have credit cards at a very young age. This way, I can proactively teach them how to responsibly use a credit card.
You should seriously consider doing the same.
Author Bio: Joel is a CFP and the owner of a website with a unique credit card finder to help consumers easily compare credit card offers.
Btw, there's a pretty nifty tool that motivates your kids to do chores. It's called MyJobChart.com. With a free account, they can earn points for finishing jobs you assign them, good towards free merchandise. Give it a try. It's completely free!