We've all heard of the horror stories about kids using credit cards to rack up huge debts. So maybe it's crazy for a parent to give a credit card to his 13-year-old daughter.
But I did, and here's why.
My wife and I figure, the sooner our young teenager learns how to use a credit card, the less likely she is to get in trouble with one later. We also want to boost her credit by making her an "authorized cardholder" on one of our accounts. This effectively adds one of our accounts to her credit history, giving her the benefit of our own strong credit history.
Finally, giving a credit card to you child can be convenient for parents. For example, if we should need our daughter to run some errands for us, she could use her credit card instead of us having to remember to give her cash first. And should your driving age teen run out of gas, or have a mechanical breakdown, having a credit card can be essential for getting help.
How to teach kids about credit cards
No one is born with the knowledge of how to use credit cards responsibly, even credit card experts. Thankfully, I was taught responsible credit card use from my parents, and this is the model my wife and I are using to teach good habits to our children.
My parents made me an authorized user on one of their credit cards when I was a teenager, and they carefully supervised my use of it. At first, they would loan me the credit card to make a specific purchase. For example, if I was joining a friend to go to a movie, my parents would give me the card instead of cash, and tell me that I could use it to buy my movie ticket, and perhaps a snack. They were careful to set a maximum amount that I could spend with the card that day. And if I wanted to spend a portion of my allowance or savings on something specific, they might give me the card to make that purchase, and deduct the amount from my savings that they kept for my use.
Each month, they would show me the credit card bill, and how they paid it off, in full and on-time. The lesson I learned was that a credit card was merely an alternate method of payment, akin to using cash or checks. It was never used as a license to spend more than we could pay off immediately.
Later, around the time that I was bicycling or driving around town unsupervised, they gave me the card to carry in my wallet, but let me know I was only authorized to use it for specific purchases, or in an emergency.
Once I turned 18 and was able to apply for a credit card account as a the primary cardholder, my parents continued to supervise my use of the account. They strongly encouraged me to use my cards just like I was spending with cash, and to always avoid interest charges by paying my balance in full. In fact, I recall being somewhat annoyed by their frequent reminders to do so while I was in college.
The rules for credit cards and teenagers
Different credit card issuers have different rules for adding teenagers as authorized users. Some, like Capital One, Chase, Citibank and Wells Fargo have no minimum age, while American Express and Barclays require authorized cardholders to be at least 13 years old. Discover has a minimum age of 15, while US Bank's requires authorized cardholders to be 16.
As an authorized cardholder, your teen will not be responsible for the repayment of any charges — that will be the responsibility of the primary cardholder. And while your authorized cardholders will benefit from your good credit, they can also be hurt if you have too much debt or if you miss payments. If you're having credit problems, it's best not to add your teen to your credit card account.
Also, any charges made by an authorized user to a rewards card will accrue points, miles or cash back for the primary cardholder.
How to add a teen to your credit card
In addition to the techniques, outlined above, used by both my parents and I, there are some other best practices that I would recommend for giving your teen a credit card. First, choose the right card. I made my 13 year old daughter an authorized cardholder on an account that I use infrequently. That makes it much easier to identify the charges my teen makes.
Also, take advantage of any limits and alerts that your credit card issuer offers. For example, some card issuers offer text messages any time a charge is made by an authorized user, or any time one is made above a certain amount. Many card issuers also allow the primary cardholder to limit the amount of charges that an authorized cardholder can make. Whether or not you choose to use these features, you can always make use of your card issuer's mobile app to monitor your teens credit card use.
Lastly, keep in mind that all teens are different and that they will mature at different rates. If you don't feel that your teen is ready to handle the use of a credit card, then just wait. Also, there are many companies that offer debit cards designed for teen use that may be more appropriate.
It's not crazy to give your teen a credit card with the goal of improving his or her credit while teaching responsible use. By carefully guiding your child's use of a credit card, you can teach him or her valuable personal finance lessons while ensuring that they're always able to make necessary purchases when you're not around.