More parents giving their kids credit cards
Consumer finance expert, author and “Opening Credits” columnist.
The thought of arming a child with a credit card sends chills down many a parent’s spine. Yet, despite the fear of them draining family finances on childish things, giving kids cards emblazoned with their names has become a more common practice than it was just a few years ago.
A 2017 Parents, Kids & Money survey conducted by T. Rowe Price found that the number of children ages 8-14 with access to credit cards has quadrupled in just five years. And the number of kids ages 13 and 14 who now carry credit cards more than doubled in the past year alone, according to the survey.
Eighteen percent of children ages 8 to 14 are now carrying credit cards as guests on their parents’ accounts, unchanged from 2016, but up from 11 percent in 2015 and 4 percent in 2012. What’s even more eye-opening is the age of the kids getting cards: 13 percent of 8- to 9-year-olds; 18 percent of 10- to 12-year-olds and 19 percent of 13- to 14-year-olds, all showing increases from 2016 figures.
|How many kids ages 8-14 have a credit card?|
|Source: 2017 T. Rowe Price Parents, Kids & Money survey|
“In a world that is becoming increasingly more digital, kids need to know less about how to cash a check and more about how credit cards work,” says Stuart Ritter, a former senior financial planner at T. Rowe Price. Ritter contends that letting kids use a credit card can be a good way for them to begin learning about modern money exchange. Note that kids under 21 typically can’t qualify for cards on their own, so their parents are adding them as authorized users on existing card accounts.
Audrey Guskey, professor of marketing at Duquesne University in Pittsburgh and consumer trends expert, believes the age kids first gain access to a parent’s card will continue to descend. “We will be seeing it more for preteens,” says Guskey. “It’s going to be natural for them.”
Just why more and increasingly younger kids carry credit cards is complex. According to Guskey, some parents are affluent baby boomers who can afford to let their children ring up expenses on their cards. Then there’s the bandwagon factor.
“The kids have the cellphone and now they have the credit card, which makes the kids cool,” says Guskey. It’s akin to having the latest electronic gadget. When an adult’s peers are equipping their little ones with cards, they’re apt to follow suit.
Still other parents do it because they want to teach their kids wise shopping and charging techniques early.
“More and more we are a cashless society,” says Guskey. “Even retailers find cash inconvenient, so credit cards are becoming a practicality issue. Young people need to have plastic.”
Banks, too, don’t seem to be putting up much resistance. “Let’s not forget that the first card you have is the one you’ll stick with for years and maybe forever,” says Guskey. “Little kids having cards is thrilling news for credit card companies.”
However, since people under 18 can’t enter into legally binding contracts, all such accounts are tied to the adults, and carry a level of risk. Making minors authorized card users allows parents the ability to track purchases via statements or text alerts, but the account activity will appear on all cardholders’ credit reports. If it’s mismanaged, everyone associated with the card will be dinged.
Here a few brave parents reveal their reasons for equipping their kids, from ages 9 to 18, with credit cards.
For safe travels
The age Dana McKenney Zucker, owner and writer for MomsGoodEats.com, and her husband added their children as authorized users to their credit card accounts was 14.
“They were flying by themselves at that age to go to sleep-over camp,” says Zucker, who lives in Omaha, Nebraska. “We didn’t want them to feel stuck or stranded.” Traveling with cash alone is risky, because if it’s lost or stolen, the money is usually gone for good. With credit cards, though, funds are replaced when fraud is reported to the credit issuer.
It was easy for the kids to use the cards, says Zucker. Since the cards are imprinted with their names, they just needed to provide their student ID or passports when cashiers asked.
The Zuckers didn’t just toss the kids cards and walk away; they educated them throughout.
“Even when we were with them and could have paid, we had them use their cards,” she says. “We would work though the tips. They got an understanding of what things cost; they were just a part of it.”
Zucker’s son, Samuel, who is now a student at Brandeis University studying economics and business, is still on his parent’s credit card and is grateful for the experience. “I liked having it at a young age. It taught me to not spend a lot," he says. “I know that I could control myself. It’s nice to have. I know it’s a luxury that I don’t want abuse.”
To establish a credit history early
Few know the value of a high credit score more than mortgage professionals like Denise Panza, from New York City. “I see reports all the time that aren’t so pretty,” says Panza. Unestablished or damaged credit will result in loans with terrible terms (higher interest and fees), or outright loan denial.
For this reason, she made her son an authorized user on her credit card when he turned 18.
“Today, three years later, he’s a junior in college with a 760 credit score,” says Panza. “I think more parents should do this for their children. It’s a perfect gift to get them started in life. They will ultimately get better rates on car loans and home loans.”
|Credit cards by age|
|Age in years||2016||2017|
|Source: T. Rowe Price Parents, Kids & Money surveys|
But while Panza taught her son how to use the card, she admits mistakes were made: “He did abuse it a little, and there would be Taco Bell, McDonald’s charges on it. The card wasn’t for that, so I took it away. Now he doesn’t have it in his possession. He’s 21 and I pull his credit every six months. He doesn’t have his own card in his name because I don’t think he’s really ready yet.”
To teach financial responsibility
Shelley Armato, CEO of MySmartPlans.com and Marathon Digital Services, is a Kansas City, Missouri, mom of three who gave each child gas cards when they were 16, then made them authorized users on another card at 17.
“I was doing it to empower them,” says Armato, who was a single mother at the time. She also needed their assistance to run the household, so access to the cards made sense.
“My daughter went grocery shopping, my boys helped me with other things. The cards helped them become responsible people. I owe that to giving them credit cards at a young age.”
Armato says she didn’t micromanage the process, and a few snafus occurred. One, especially, comes to mind. While her daughter was in Florida, Armato checked the account statements.
“I thought her card was stolen because there were charges from a tattoo shop!” recalls Armato. “I called her and said, ‘Oh my goodness your card was stolen, you poor thing, what else did they get?! I’m going to kill whoever took your wallet and used the card!’”
Turns out there was no crime. Her daughter was forced to admit she got a star tattooed on her foot. Busted.
Video: 3 ways kids build credit
Some words of warning
Not everyone agrees that giving kids charging rights on a credit card is a wise idea. Financial planner Reshell Smith, from Ocoee, Florida, is dubious. She’s seen the resulting debt and credit problems associated with children sharing an adult’s account.
“Personally, I’m against minors having a credit card,” says Smith. “Eighteen or older is fine. Before that, a debit card is good.”
If parents insist, she tells them they must first cover how all the activity with that account will be listed on every cardholder’s credit reports and factored into their credit scores. Authorized users may escape long-term damage by being removed from the account (afterward it will no longer appear on their credit files), but owners are stuck with it.
Late payments, charge-offs and debts sent to collection will remain listed for seven years.
Smith says it is essential that parents establish firm ground rules for usage: “Tell them why you’re letting them have it. Explain what they can and can’t use the card for. This is serious.” Make sure the kids are aware of the consequences for misuse, too, which might include temporarily or permanently revoking the card.
Ritter, a father of three, believes a good start is to layer discussions about charging into everyday interactions.
“One time, when shopping with my 6-year-old daughter, she asked if she could have a credit card,” says Ritter “She was under the impression that if she had a credit card, she could use it to buy whatever she wanted. I was able to use that opportunity to explain how credit works. If I hadn’t had that conversation with her, she would have continued thinking credit cards were magic."
Finally, parents need to be proficient with their own money and credit management skills, especially when their mistakes will affect their children. If you aren’t, it’s time to learn.
According to a 2016 Bank of America study, 60 percent of the millennials said they received their financial information from their mothers and fathers or from good role models (49 percent). However, of those who attended college, only 41 percent said their college education sufficiently taught them good financial habits, and only 31 percent of millennial respondents said their high school education did so.
Armato admits that she was hazy on the subject of credit prior to card sharing with her kids. “At first I was ignorant to how it would affect their credit score,” she says. “Once I realized my habits affected them, it forced me to be better. I’m thankful.”
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