Young people have the power to apply for a credit card at age 18, when they're legally able to sign contracts. And with a parent's consent, kids can apply for a card at an even younger age, or be added to a parent's account. Should you encourage your child to get a credit card, or help her get one before she turns 18?
When a child can handle a credit card depends on the individual kid. But make no mistake about it -- it pays to teach your child about credit cards and money management early on, before they get into financial hot water.
The Pros and Cons of Kids and Credit Cards
Credit cards are convenient -- and that convenience can be a big help, and safety net, for teenagers and young adults. For example, credit cards can help your kids in an emergency -- maybe they need to use it to pay for a cab ride home because their designated driver is drunk.
In addition, having a credit card and building a credit history is an important part of financial health in today's world. Indeed, having no credit history can make life almost as difficult as having a low credit score. So at some point, your children will need to learn how to choose a credit card and use it wisely. If used in a responsible manner, credit cards can help your children avoid financial jams, learn to be savvy consumers, and establish a good credit score.
The trouble is, of course, that credit cards are a little too easy to use, on impulse purchases as well as necessary ones. And a few mistakes -- like racking up debt that can't be paid back, then skipping a payment or two -- can seriously damage your child's credit score. A low credit score ripples into other parts of life, potentially making it harder to get jobs, rent apartments, and of course, take out other loans -- not exactly the way you want your child to launch into adult life. (To help your child manage money during college, read Nolo's article College Students: Make a Budget for Your Expenses.)
Teach Your Child to Use Credit Cards Wisely
Whatever you do, don't ignore the credit card question for too long. Kids under 18 have been known to find ways to apply for credit cards without their parents' consent. And college kids get barraged with credit card offers -- often with high fees and interest rates. So it makes sense to teach your children about credit cards and money management -- including budgeting, saving, and being a smart consumer -- before they get themselves into financial trouble. (And don't rely on schools to provide this training -- it's not usually on the curriculum.)
There's no magic age at which a child is ready for a credit card or other financial responsibility -- you'll have to gauge that based on how your child handles money, chores, homework, and the like. When you feel that a child might be ready (or interested) in having a credit card, take the time to help choose a good card and use it well. Use the following tips as a guide:
- Discuss the responsibilities that come with owning a credit card, including the importance of a good credit score. (To learn more about credit scores, read Nolo's article Credit Scoring.)
- Recommend that your child start out using the card only for emergencies, or else for purchases that can be paid off at the end of the month (using an allowance or the child's own earnings).
- Impress upon your child how quickly credit card interest can pile up and dwarf the original cost of what was bought. A good way to do this is by using credit card calculators like Nolo's How long will it take me to pay off my credit card? calculator.
- Sit down with your child and carefully review the terms of credit card offers and contracts. (To learn more about choosing a credit card, read Nolo's article Shopping for Credit Cards.)
- Make sure the child has a plan for dealing with the monthly payments and will call you, pronto, if there's a payment problem. But don't give your child the idea that you'll simply bail him or her out after a spending spree. (For more tips on how to use credit cards wisely, see Nolo's article Avoiding Credit Card Debt.)
For more tips on teaching kids about money management and other information about taking control of your family's finances, get The Busy Family's Guide to Money , by Sandra Block, Kathy Chu, and John Waggoner (Nolo).