When’s the Right Time to Give Your Kids Credit Cards?

When’s the Right Time to Give Your Kids Credit Cards?

When each of Bruce Ailion’s children hit their teens, each received a credit card with a clear explanation of what’s permissible—food, gas, movies, reasonable clothing. Before purchasing anything costly or unusual, they were asked to check in first.

“I am a $20-and-under-T-shirt sort of guy, so they know I would want to know why it was so important to have (a more costly) T-shirt,” says Ailion, of Atlanta.

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He had a clear motive in mind: “I want independent, self-confident, self-assured, good decision makers," he says.

The system worked well for the family; all three children have since become financially responsible young adults.

Since the passing of the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009, companies cannot issue a credit card to anyone under age 21 without a co-signer or proof of regular employment. But a parent can add a child to their account anytime. How do you know when he or she is ready?

“No one knows their child, and level of financial discipline, better than the parents who have watched the child mature,” says Gail Cunningham, vice president of membership and public relations at the National Foundation for Credit Counseling in Washington, D.C.

Pleas and promises aren’t reason enough for granting credit. Instead, think carefully about:

  • Their ability to deal with peer pressure. Difficulty saying no to a friend can result in unwanted line items on your bill.
  • Their track record with gift money. “Do they spend it before the sun goes down?” asks Cunningham.
  • Their overall sense of respect. “Compliance with household rules—making their bed, coming home on time—can indicate readiness to handle money with care,” says Cunningham.
  • Their ability to act responsibly. Frequent lost items or forgotten appointments may suggest postponing credit for now.

RELATED:The White House Wants to Teach Your Kids About Finance

Once you’ve decided your child is ready, it’s important to remain involved; most teens are blissfully unaware about buying on credit.

In the 2011 Teens & Money survey by Charles Schwab, 77% of the 16- to 18-year-old teens polled felt knowledgeable about money management, but only 35% knew how to manage a credit card and 31% knew what a credit score was. However, a robust 42% wanted their parents to talk to them more about establishing good credit.

RELATED: 5 Financial Conversations You Should Have With Your Kid

These early years can be a teaching opportunity. Before the card arrives in the mail, have several small, focused conversations to ensure they understand the overall process. Once they’re spending, monitor their account regularly and discuss their choices—both good and not-so-good.

Julie Tallard Johnson, of Spring Green, Wisconsin, goes online regularly to keep an eye on her daughter’s spending, but hasn’t yet run into a problem. “We’ve asked her to run spending by us if the total is above $50," she says.

Overall, Tallard Johnson feels the experience has been a good lesson for her daughter, who has proven to be financially conservative. “She wants to have money in the bank, too. She is learning that online spending can be a bit too easy, but no problems thus far.”

RELATED: Quiz: What Is Your Child's Financial Personality?

Finally, if your charge-happy teen does run into a jam, don’t quickly bail them out, suggests Sharon Lechter, a national spokesperson for the American Institute of CPAs and author of "Save Wisely, Spend Happily: Real Stories About Money & How to Thrive from Trusted Advisors."

“Help them learn to be problem solvers. Discuss solutions and ways they can earn money. This can be an opportunity to ignite their entrepreneurial spirit,” suggests Lechter.

Early financial experiences, whether positive or negative, can have a lasting impact on a young adult. Once you decide the time is right, make sure their new plastic comes with your knowledge and supervision. With a guided start, your child will develop smart consumer skills that will last a lifetime. 

RELATED: 5 Secrets to Raising Financially Responsible Kids

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