When and how to give your kid a credit card
Parents give their kids a lot of credit.
Nearly one in five (18%) parents of children ages 8-14 says that their child has a credit card, according to data released this year from financial firm T. Rowe Price. And it’s not just the 14-year-olds who have cards: 13% of 8- to 9-year-olds; 18% of 10- to 12-year-olds and 19% of 13- to 14-year-olds do, the data shows.
What’s more, more parents are doing it: Those numbers are up from about one in 10 (11%) who said their kids had a card in 2015, and just 4% in 2012.
Of course, these kids aren’t just walking into a bank and demanding a credit card — card issuers have age limits, after all. Instead, many parents are adding their children to their card as an authorized user, which means their child is allowed to use their card, explains Kimberly Palmer, NerdWallet’s credit card expert. Or they may just be handing their own cards to their kids. (Some cards have no minimum age to add someone as an authorized user, others do have it, typically roughly age 13 or older.)
Parents may do this for a variety of reasons, experts say: To make it easier for kids to buy things when they’re away from mom and dad; so they have emergency money if they need it; to build up their kids’ credit; and to help teach them financial responsibility. But should you be doing it? Here’s what you need to consider.
How old and how mature is your child?
Just because other parents are giving their kids credit cards at age eight, doesn’t mean you should. “It’s hard to imagine a scenario” where it makes sense to give an 8 or 9-year-old a credit card, says CreditCards.com’s senior industry analyst Matt Schulz. He says that the later teen years are probably the most appropriate for giving a kid a credit card — but this all depends on how mature and responsible with money they are. “There are 16 year olds who might be responsible enough, but plenty of 19-year-olds who aren’t,” he says. Do things like looking at how your child handles his or her allowance, for example — does he spend it quickly and then beg for more? — or how he or she behaves when you shop together to help figure this out.
Have you set spending limits?
“To protect parents’ finances, it’s a good idea to choose a card with a low credit limit, and also to be sure to track purchases carefully — on some cards you can sign up for purchase alerts — to make sure the child is not overspending,” says Palmer. “It’s important to agree on what is acceptable spending ahead of time, and then use the card to have more conversations about debt, budgeting and being responsible.”
Have you communicated the pros and cons?
It’s important that children understand both the risks of credit cards — and the rewards. Clearly communicate risks like the cost of interest in simple examples (say how the purchase of a $100 pair of sneakers could end up costing double that) as well as how late payments and other issues on a credit card can impact credit scores. Also communicate benefits, like how paying your bill in a timely manner can boost your credit score and why that’s important.
Have you considered other options?
Schulz says that it may be good to start kids with something like a prepaid card — where you put a certain amount of money on the card, and that is all the child can spend — before giving them a credit card. Another option is a secured credit card, where you put in a cash deposit (say $1000) and that is what you can charge on the account.
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