Decide whether it’s time, then help your teens use cards wisely, and put checks in place if they don’t
Nearly 1 in 5 American teenagers ages 13 to 17 now has a credit card, and the majority of them use their card at least once a week, according to a survey by credit reporting agency TransUnion.
Of course, children this age still can’t have their own credit card account because they cannot enter binding contracts. Until they’re at least 18, they will need to be authorized users on an adult’s account. Still, once that card is in their hands, so is the spending power that comes with it.
There is no one-answer-fits-all to the question of when and whether to give your child his or her own plastic. “It depends on your relationship with your child,” said Sandy Wheat, the executive director of the North Carolina Council on Economic Education. “It depends on how responsible your child is.”
Do’s and don’ts about giving a teen a credit card
- DO have “The Talk” with your teenabout how credit cards work.
- DON’T assume that your teen understandseven basic credit concepts.
- DO check that your teen’s payment historywill be reported to the credit bureaus.
- DON’T assume your child will spend responsibly. Put safeguards in place to avoid surprises.
- DO set boundaries on spending. Talk with your teen about what it means to spend responsibly.
- DO trust – but verify.Consider meeting regularly with your teen to review charges.
- DO be prepared to step in if the charging gets out of hand.
- DO regularly check that your kid hasn‘t misplaced the card. Kids lose things. All the time.
- DON’T give them a credit cardif you’re struggling with card-related debt.
- DO be clear that having a credit card is a privilege. Financial maturity comes to some of us earlier than others.
Consider these two realities:
1. You are liable for your teen’s charges.
For example, if prom time comes and your kid charges the entire party bus on the new credit card, and his friends fail to pay him back, and he’s blown all his work money on dinners out with his girlfriend, guess what? You’re going to be shelling out for that party bus, whether you authorized it or not.
2. That means your credit score is at risk.
If your daughter is supposed to reimburse you for her share of the bill, and she forgets month after month, it doesn’t matter that her signature was on every charge slip. If you can’t afford to keep those balances under control, it’s your credit score that’s heading downhill fast.
Reasons to give your teenager a credit card
Still, there are reasons parents give credit cards to middle and high school students.
- Maybe a son or daughter is away at school or travels frequently with sports or academic teams.
- Perhaps you are often either out of town or at the office, and you feel your child needs some financial flexibility.
- An authorized user card can help create and build a child’s credit score.
- Or maybe a mom or dad wants to teach a child the ins and outs of the credit world while your teen can still be made to listen and follow rules.
If that sounds like you, here are some do’s and don’ts to keep in mind before you add an underage user to your account.
Video: 3 ways kids can build credit
DO have ‘The Talk’ with your teen.
Not the one about how babies are made; the one about how credit cards work.
If this is the first conversation you and your child are having about money, “you need to put on the brakes,” says Susan Schroeder, an accredited financial counselor in St. Paul, Minnesota. “We don’t talk about sex once. We don’t talk about drugs once.” Why should money be any different? Make sure your child understands the concept of interest, and that your teen knows what compound interest is.
In fact, make sure they understand all the terms that come with credit cards (we can help – check out this glossary of terms for first-time card users, and these credit terms for students).
DON’T assume your child understands how a credit card works.
And, she said, not many 13- to 15-year-olds know what a credit score is, or why it matters .
Otherwise, you assume risk without building your teen’s credit score. If that’s the case, Schroeder says, why bother?
DON’T assume your child will spend responsibly.
- American Express allows cardholders to put spending limits on authorized users, as does at least one Visa – the Costco Anywhere Visa by Citi.
- Visa itself offers (to customers of either Navy Federal Credit Union or TD Bank) a prepaid card designed especially for teens, called Buxx, that parents can reload directly from their credit or debit cards, or, with a five- to seven-day delay, from their checking account. Note, however, that most prepaid cards do not report to the credit bureaus.
- DFCU Financial has a credit card especially for teens ages 14 to 17, with an initial credit limit of $250 and a max of $1,000. Parents are responsible for the payments.
- Apps such as CardValet will send you transaction alerts and set spending limits.
- Consider a secured card, in which you put down a deposit (say, $250) that becomes the credit line for that account. The account would be in your name, but you can add your child as an authorized user as you would on a regular card account.
- If you’re simply looking to build a credit history for your children, youcan make them an authorized user – then when the card comes, put it safely away in a drawer.
- At the very least, don’t add your child to an account with a high credit limit. It is better to put her on a card with a low limit, “so she can’t charge more than you can actually repay,” Wheat said.
DO set boundaries.
And do it before the charging begins.
- If the card is for everyday purchases, talk with your teen about what spending is allowed, and what is not, before you hand over that piece of plastic, Bailey says.
- Emergency only? What constitutes an emergency? This is worth its own discussion with your teen, Bailey says.
- What your 16-year-old son considers a crisis may not meet your own definition. You could ask him to call you before any use of the card. But that’s not always possible in the heat of the moment.
- That’s where guidelines come in, like advance permission to have the vehicle towed, or paying an urgent care clinic or a hospital in the case of a medical emergency, she says.
Video: What is a secured card?
DO trust – but verify.
If this card is for more than emergency use, consider setting up regular meetings with your teen to review charges. You could begin with once a week and if your child proves trustworthy, push that back to once a month, Bailey says. If you have concerns about your teen’s honesty, tell her she needs to be able to produce a receipt for every item on her bill.
This is not the time for independence, says Laura Levine, CEO of the Jump$tart Coalition for Personal Financial Literacy, a Washington, D.C., nonprofit. Credit savvy is something you can teach your teen through the practice of using a card, “but the card itself isn’t going to do it,” she says.
DO regularly check that your teen still has the card.
Kids lose things. Why should a credit card be any different? Tell her if she realizes she’s lost the card, rather than staying mum so she won’t get in trouble, she should tell you immediately so you can freeze the account.
“Explain what can happen if the card is lost and gets into someone’s hands who will rack up a balance,” Bailey says.
DON’T give your teen a card if you’re already struggling with card-related debt.
“Don’t consider this as an option unless your own financial house is in order,” Schroeder says.
DO be clear that having a credit card is a privilege.
Giving a teen a credit card is a risk, and the teen could very well disappoint. If so, be prepared to take the card away, either temporarily or permanently. Financial maturity comes to some of us earlier than others.
See related:What’s the minimum age to be an authorized user?, 4 signs your teen isn’t ready for credit cards, 4 ways to sabotage your child’s financial independence