You wouldn’t let your teenager cruise around solo before he’s had some driving lessons, would you? It’s pretty obvious that the responsibility of driving is something that requires education, practice, and time.
But many parents are allowing their teens to take on another important responsibility without the benefit of an education. Specifically, many young people get their first credit card without any idea of how to manage the privilege. This can have disastrous results.
Rather than letting your teenager navigate the potentially treacherous waters of credit by himself, start providing him with age-appropriate lessons early on.
Here are a few reasons why you should give your kids a credit card.
Be Proactive in Teaching Responsible Credit Card Use
According to Sallie Mae’s credit card study, 57% of all undergraduate college students have at least one credit card and the number quickly jumps to 83% for those who complete their studies. The surprising stat is that the average number of cards each student has is already at 5.2 while they are still in school. 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 to teach them the value of saving money.
Smart Student Credit Card Use is NOT Guaranteed
This may not be a shocker to you but many students don’t use their credit cards responsibly. According to the aforementioned Sallie Mae study, only 60% of students with a credit card pay off the balance in full every month. What’s more surprising is that this number only gets marginally better once they complete school with 64% paying their balances in full every month.
What this means is that absent some sort of parental guidance, most students who get a credit card will mismanage their credit card by racking up interest charges.
Leaving your kids to learn about credit cards on their own may mean that they will end up carrying a credit card balance for the rest of their lives. 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.
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 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.
How Should I Introduce Credit Cards to My Kids?
Here’s how.
For Young Teens and Those Who Need More Structure
Getting a prepaid debit card for your child can be a good first step in helping them to understand credit. The upside of a prepaid card is that it makes it impossible for the child to get into trouble – once the money is depleted, the card is declined.
In addition, this can be a good way to introduce young teens (those under 15) to the intricacies of non-cash budgeting. Since many banks won’t offer checking accounts to kids under a certain age, this is another way to help kids figure out how to budget their allowance (which you load onto their card).
One downside to prepaid cards is the number of fees for maintenance and usage. Be sure to shop around to find the best prepaid card. All of them have some fees, but there are many that keep them reasonable.
For Teens with Jobs
Opening a checking account is an important step to financial maturity and one that teens can handle with their parents’ help. Many banks offer student or minor accounts that have lower fees than their grown-up counterparts.
When your teen opens his account, he’ll learn how to deposit paychecks, balance his checkbook, and maintain a necessary balance. When you feel that he’s ready for the responsibility, you can add a debit card to the checking account, which will again give him an opportunity to learn how to pay, budget, and handle non-cash transactions without leaving him vulnerable.
Depending on your child, you may want to be a co-signer on their checking account, or you may want him to go it alone. While being a co-signer gives you more oversight on what’s happening with the account, it also makes you ultimately responsible for any fees he accrues.
For Older Teens and College Students
Once your teenager has proven himself capable of handling a prepaid card and a checking account, he’s ready to move on to a credit card. Until he turns 21, he can’t get a card on his own without either a co-signer or proof of income, so you can either open a joint card with him or you can add him as an authorized user to your credit card.
Having him as an authorized user will help him build his credit history. It also means that you’re responsible for the credit card bill though. A joint account means that you and he are both equally responsible for the charges, so that’s why it’ll help him to establish his credit.
The Bottom Line
Learning how to responsibly use credit is not always an easy process. Many people find that they need to make mistakes and learn from them before they truly understand what to do. You can make that learning curve shorter (and less painful) for your teen by introducing the skills associated with credit cards over several years. Still, it’ll take time. Is it worth it though? for us, it’s a resounding yes. Here is why you may want to
How have you helped your teens learn about credit cards?
{ read the comments below or add one }
20 years ago through high school and college, I had a checking account and used that for depositing and paying for the things I was responsible for (in college, that was all living expenses). After college, I applied for a credit card. Wouldn’t happen today but my first application was turned down: insufficient credit. So I applied and received a store credit card, used that, paying off the balance, and then on to a regular credit card. I’ve never not been a responsible credit card user. On the other hand, I knew kids in college who had cards through their parents who spent irresponsibly. Maybe I’m an exception, or maybe the fact I didn’t get a credit card until I had already learned good financial habits through a checking account and was older and more mature was to my benefit.
Given the fact that they will be offered one as an adult, I think it’s OK to allow one if the child is working age (14-16). If he/she uses the card, he/she makes the payements. It’s a risk but I do think we as parents need to be proactive and educate our children.
This is not really physical that you are not able to pay your bills and using credit cards.there was an easy way for my parents to let me know since it seems like the only way to truly understand is if the money had to come out of my own pockets. Try to understand Business Service and their usage in a proper way.
This is a great opportunity for children, with a lot of parent activity, to learn about credit cards. Teaching them to pay bills, regulate their spending, and build credit at the same time. That is, only if the parents are involved enough to help nurture the child finality understanding.
I think credit cards should be like a loan and that a parent or guardian should be a co-signer but the bills come to the person taking out the card. The child would feel more responsibility but you have that insurance by having a co-signer. Kids DO need to learn responsible credit card use. If they have the guidance of a responsible parent then they are the lucky ones. It appears there are many kids (and adults) that are running amuck with their credit cards. And, it just may lead to economic ruin. Oh, wait, we’re already there… 😉
Jerry
You are all wrong – money does grow on trees – I find it there all the time.
It was hard for me to understand that money in fact didn’t grow on trees until I was on my own and had to pay all the bills. I wish there was an easy way for my parents to let me know since it seems like the only way to truly understand is if the money had to come out of my own pockets. Getting a credit card and having my parents talk to me about it seems to be a good way to get this done and I will certainly try it when I have kids.
personally i think that kids should be taught that money does not grow on trees from the age they can understand words. This is because they are very impressionable during the very first years of life and they need good habits instilled into them to counteract all the advertisement that they are pounded with all day long. If they learn the value of money at a young age and the parents see that they are responsible withe cash, i see no qualms as to why they cannot have a credit card(that has some sort of credit limit so that they dont get tempted to buy all the clothes in the mall)
You make a great point about the impact that advertising can have even on young kids. I agree that this makes it even more important for parents to take a proactive role in explaining how to responsibly manage their money. – Joel
I think it’s important for parents to be involved in their children’s education, and to teach them about the proper management of their money. With that said, I’m not so sure that you have to get your kid a credit card to teach them about reponsibly managing money, or responsibly using credit cards. Why not teach them about the power of saving up and paying cash for the things they buy? I think that would be a much more powerful lesson in the long run. Yes, you can teach them about credit cards, but why set them up to learn the hard way when you can teach them about saving/investing and paying cash? If you do that they’ll be far ahead of the curve. I think more people should teach their kids that it is ok and possible to live life without credit cards.
I’ve been telling my kids about credit cards almost every time I pay. This way, they learn about spending through practice. When they can get a credit card,
I also plan to let them pay for it and then talk to them when they see the huge bill so they understand that nothing is free and EVERYTHING adds up.
My grandsons have had savings (age 10) and checking accounts (with debit cards) (12) since they were (and yes, they were earning money). They also have 2 credit cards (age 14) which they use for emergencies and pre-arranged purchases. They needed these for school trips etc. They were a really handy thing when applying to colleges. Carrying cash is sometimes problematical/dangerous. On-line purchases are best with debit/credit cards. Yes, they are a learning tool and today kids do live in a world where responsible credit card use makes sense. By the way, their mother had the same: first savings, then checking, then credit cards from a very young age. Saved lots of problems when she became an adult because she knew what other kids here age did not know about money, credit, etc. I do not expect problems with the credit cards. These 6 kids also share a “family plan” cell phone account and they have NEVER gone “over limit” on calls in the time they have had the phones (about 6 years). If you want kids to be responsible about money, you have to let them have access and some control so that they understand what things cost, how to save for what they want/need, and so forth. And, yes, they need to know about the family’s finances and how they fit into the bigger picture. Concrete and specific knowledge about the cost of things like groceries, heating oil and electricity is more effective than random yelling about eating what is on your plate, closing doors or turning off lights, for example.
This article is very insightful and I am in total agreement with you. As parents we should instill that responsibility of money management where Credit Card is concern. I hope parents will not see the CARD policy as an hindrance but use it in teaching their kids.