Should Teenagers Have Credit Cards?

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Giving credit cards to teenagers is a touchy subject. Some people feel that handing a credit card to a teenager is like giving them permission to go out on a very large spending spree, or advocating that they go into debt.

So, what are the pros and cons of this? Why would anyone give their teenager a credit card?

Cons of Giving Teenagers Credit Cards:

  1. They may begin to see credit card debt as an acceptable thing - If you outright hand your teenager a credit card, that is the same as telling them that’s it’s OK to go into debt.
  2. They will almost certainly use the card improperly at first - Most teens will run right out, and charge up the credit card to the limit. (That’s a generalization, I’m sure some teens would be responsible with a credit card.) It really depends on the kind of debt instruction they have had previously.
  3. It may be difficult for them to handle the responsibility - the teen years are tough, kids are learning to manage a lot of things at that time, and throwing credit into the mix may be difficult.
  4. It teaches them to borrow on credit rather than save for what they want - If they can go right out and by that new game, or outfit, or CD, why would they want to wait?

Pros of Giving Credit Cards to A Teenager:

  1. You are there to guide them, and help them understand how credit works, before they leave your house - This could prevent a lot of pain and heartache for them later – especially since credit card companies regularly stake out college campuses and offer free T-shirts to anyone who applies.
  2. You can be there to teach them about compound interest, why they should pay their bill off every month, and how they can benefit from rewards if they do things correctly - Credit cards are excellent financial tools when used correctly – and by laying down the ground rules while your child is still young it gives them the best chance for success.
  3. There probably is no replacement for actually handing a child a credit card, letting them get into trouble with it, and then making them work to pay back what they borrowed - If you can enforce that rule in your house as early as possible, it would be a valuable, lifelong lesson for your kid. It would also, hopefully, keep them from making the same mistake once they leave your house.
  4. Skills to pay the bills - If your child actually has a credit card that they are managing, you can teach them to mark the due dates on a calendar, to budget so that they can pay the balance in full. You can also show them how much interest they were charged if they do not pay the card off in full each month.
  5. You can help your child build a positive credit history early on - The benefit to this is twofold. As long as your child has a credit card, you can actually monitor your child’s credit report along with them. This opens up a wonderful opportunity to teach them about why credit scores are important, and how they are computed.

    The second benefit is that by making sure they use their cards correctly, you are raising their score a little while they are still at home. This will help them when they go to apply for student loans, a car, or an apartment. It will give them leg up when they are starting out.

The decision about whether or not to give your child a credit card is personal, between you and your child. What do you think? There are some hefty pros and cons to the issue, what do you believe is right?

How can you judge whether or not your child is ready to be responsible with a credit card?

There’s actually a pretty simple way to tell. You can purchase a pre-paid credit card and give it to your child. Tell them it’s for emergencies, and then sit back, and wait for a few months.

If your child does not charge anything, or very little on the pre-paid credit card, they are probably ready to handle the responsibility of having a real credit card.

However, if they come back to you a couple of weeks later and all of the money on the card is gone, then you will know it’s time to sit down and talk to them about credit, and what constitutes an emergency.

How do pre-paid credit cards work?

Prepaid credit cards are a bit like debit cards. You put money onto the card, and the money that you spend comes off of your total balance – just like putting money into the bank.

Some prepaid credit cards offer a “credit builder” program, which means that you pay a small monthly fee on the credit card. That fee is then reported to the credit bureaus as an interest payment, and it will raise your child’s credit score. In that respect, pre-paid credit cards are better than debit cards since debit cards will never help to build your credit score.

If your child manages the pre-paid credit card well enough, you can consider adding them as an authorized user to one of your credit card accounts. If you do this, make sure that your card has a low, or zero revolving balance (meaning that you pay it off every month in full). Also make sure that you never make your payments late because then it would hurt your child’s credit score as well as your own.

Neither of those two options actually involve giving a child a self-directed credit card, which personally, I think is important. That last and final step should really only come when you are certain that your child understands how credit works. When your child has a regular income, and has passed the two tests above, then it is probably safe to let them apply for a student credit card. Or a secured credit card.

Secured credit cards in particular give your child a failsafe if they leave home and get into trouble with their credit card balance, or lose their job. Since the balance on the card is guaranteed with a savings account, you will never have to worry about them defaulting during college and wrecking their credit. The balance on the card would simply be paid out of the savings account, and it would prevent further damage being done to their credit score. Essentially, it would help them get back on their feet that much quicker if they had problems.

There really is no “one right path” for everyone when it comes to children and credit. The most important thing to do is just make sure that we do all teach our children about credit - by any method we feel is right so that they have the tools they need to succeed when they leave home.

What do you think about teens and credit cards? Leave us a comment below!

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6 Responses to “Should Teenagers Have Credit Cards?”

  1. Patrice Peyret Says:

    Admittedly as self-serving comment since we run a number of prepaid card programs on behalf of MetaBank under the UPside Visa brand:

    Credit Cards also have the major drawback of not helping teens with the concept of saving for later gratification: while a teen could choose to not spend the money on a prepaid card until more money is loaded onto it (waiting for next month’s allowance or the next direct deposit from a part time job) in order to buy a bigger ticket item later, none of this process is available with a credit card. This is a fundamental building block of financial responsibility.

  2. Matt @ SF Says:

    I got a checking account and a checkbook for Christmas just prior to turning 16. It taught me basic personal finance skills as well as the importance of saving.

    So yes, I would agree CCs are good for teenagers as long as they have some parental oversight and realize swiping that CC means the same as handing over real cash.

  3. Funny about Money Says:

    “There probably is no replacement for actually handing a child a credit card, letting them get into trouble with it, and then making them work to pay back what they borrowed.”

    LOL! That’s right up there with throwing the kid into water over his head and letting him sink or swim. I nearly drowned when my father did that.

    Seriously, if you haven’t already taught the kid some responsibility, you ought not to hand her or him a credit card and invite humiliation and grief. What’s the point, other than gratifying one’s meanness?

  4. DebtGoal Says:

    This is an excellent discussion on the pros and cons of giving children access to credit. One element that was not mentioned is a discussion of how parents feel that credit should be used and how this might influence their teaching. If you believe that credit cards are primarily for purchasing convenience, you may wish to teach them how to manage the card so that they can pay the balance off each month. Some parents in this position have their children log expenses in their check register so that their kids perceive credit card expenses as drawing down their cash balances as purchases are made. Although it’s cumbersome, it does reinforce the fact that card charges are really spending from an actual balance that must be managed in order to be able to pay off the statement balance each month.

  5. liv Says:

    I got one when I was 16 and I made all the mistakes I shouldn’t have made. Luckily, the limit was low, so I couldn’t do a ridiculous amount of damage. Seeing as how I like reading up on PF now, I’m glad I got the card now. I will probably give my future kids one, and make the limit lower than what I had.

  6. Helen Ortega Says:

    THEY SHOULD DEFINETLY NOT HAVE CREDIT CARDS BECAUSE THEY HAVE NO IdeA HOW THEY ARE USING THEM. I ABSOLUTELY AGREE WITH EVERYONE ELSE WHO THINKS TEENS SHOULDNT CARRY A CREDIT CARD WITH THEM.

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