Are credit cards for teens a good idea?
The following is a guest post by Jonathan of Master Your Card. If you enjoy this post, consider subscribing to Master Your Card.
Credit card companies are selling credit cards not only to adults, but to tweens and teens as well. Before you spit out your coffee, laughing over the greed of large financial corporations, though, you might want to listen to parenting experts, some of whom claim that teen credit cards are a great idea that teaches minors financial responsibility.
So are teen credit cards a good idea?
Also known as “junior” credit cards, teen cards are actually not credit cards at all – laws prohibit lending to minors. A teen’s parents actually own the credit card – oh, goody, if you are a parent, you can enjoy all the responsibility of another credit card when you teen wants one. The teen cards in fact work very similarly to debit cards. The secure cards are loaded up with cash and can be used at any merchant who uses credit cards. Teens and tweens can check their balance online, just like with any credit card.
Are we starting them off too young?
Credit cards are a big responsibility, even when mom “officially” owns yours. Overcharges and overdrafts are very possible with teen credit cards, and those overcharges can add up. Plus, teens using plastic all the time might get the impression that money is free. After all, they don’t have to handle it and it just appears easily on their card. Identity theft is still an issue, since teens need to provide their signature and some information – via the card – to merchants. Cash, with all it’s disadvantages, is still anonymous. Most studies have shown that adults overspend when they pay with plastic rather than cash. No studies have been done on teens and tweens, but it’s at least possible that plastic works the same way with kids.
On the other hand…
For everyone who thinks that teenage years and the pre-teen years are far too early to start a love affair with plastic, though, there are those who claim that tween credit cards and teen credit cards can be great for kids. Credit cards are in fact more secure in some ways. If a retailer cheats a teen, there is a record of it. And while lunch money is easy for a bully to nab – or a teen to lose — credit cards are at least potentially easier to keep track of and easier to cancel when lost or stolen. Plus, some parenting experts claim that credit cards can teach teens good financial habits – such as creating budgets or keeping track of spending through online accounts. Many parents like the fact that teen credit cards are a form of security – that a teen always has a way to pay for a cab home when the driver is drunk or always has a way of paying for a phone call if a cell phone malfunctions.
Cautious is the wise parent
If you’re a parent considering getting a card for your teen, take things slow. Talk to your teen or tween about credit and what it means and help them choose a card with good rates and benefits. If your child does overcharge, make sure that they have to bail themselves out. Start with small amounts on the card and only build up as your tween or teen handles responsibility well with smaller numbers. Be ready to cut up the card and close the account if spending gets too far out of control. You may be pleasantly surprised, though, at the way your tween or teen takes to their allowance in plastic form.
From Lynnae: So what do you think? Are junior credit cards a good idea? And does anyone want to guess what I say?
Photo by The Consumerist.
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May 29th, 2008 at 5:13 am
I know very very few teens who are financially educated enough to manage a credit card. Most of them can’t manage a little bit of cash. There are exceptions, of course, but they are just that.. exceptions. No, I don’t think that credit cards are a good idea for teens. It just gets them used to using plastic and makes it easier for them to run up credit card debt when they get an unsecured one. And I am betting that this is similar to your own response.
May 29th, 2008 at 5:43 am
I’m generally against the idea. I think credit cards are a great tool if used properly, but so are skill saws, and I wouldn’t let my tween operate one of those on her own, either!
May 29th, 2008 at 5:47 am
As someone who works for a credit counseling agency, I see this as a good and a bad thing.
I think the key for parents who decide to let their tweens or teens get one of these cards is to really use it as a learning tool and be vigilant with their child. Your “Cautious is the wise parent” advice is right on. Parents should review statements with their child, talk about spending habits, and definitely hold their children accountable if they overdraw their account.
A huge problem with credit cards is that teenagers get to college and are flooded with offers for cards. By that point they are on their own. If parents teach their children about the wise use of credit at a young age, maybe it will help them to be more responsible once they are considered an adult with a credit card of their own. Children are never too young to learn lessons about spending and saving.
May 29th, 2008 at 5:50 am
I have to disagree with Frugal Dad, I’d rather teach my kids to use them (credit cards or saws) properly than have them learn on their own.
However I suspect the majority of adults don’t use a credit card sensibly (properly) and will therefore set their kids a bad example.
May 29th, 2008 at 6:07 am
It all depends on the kid, I would think. I never got a debit card until I got a job, and I didn’t get my first credit card until I was 18 and did it on my own. Gotta love how eagerly they’ll give them to college students!
I’ve also paid off my balance in full every month, never carrying one once in the nearly two years I’ve had the card.
I’m not sure some parents would be very good teachers. If they swipe plastic for everything, then they better put emphasis on what’s actual money being spent now (debit) and what’s money that will need to be paid back later.
I never understood how people get credit cards and can’t make the connection that they’re still spending *their* money… (That goes for any age group, too.) Somebody needs to explain that one to me.
May 29th, 2008 at 6:19 am
When I got my first job at 16, my mom took me to the bank and opened up a checking account for me. A checking account that came with a debit card. I learned that paying fees for using other ATMs is stupid and that it’s not a good idea to use up more money than you have in your account. I’m glad I learned these lessons while I was young and had less money to make mistakes with. These are lessons that, in my opinion, I wouldn’t have learned without experiencing, so yes, I think a teenage credit card is a good thing, so long as it’s funded with the kid’s own money.
May 29th, 2008 at 6:50 am
I think this is a fabulous idea for minors to learn how to handle credit and money in general while the stakes are still fairly low. $250 a pop is nothing compared to the $1000s they will be able to blow through once they get to college. I saw many of my peers make terrible mistakes while in college, from drinking to money to other less than safe behaviors and vowed then and there that I would not send my children to college so unprepared…
May 29th, 2008 at 7:30 am
I think it’s a bad idea and not necessary. I can see opening a checking account and having them get a debit card (well, not when they are tween, but a bit older when they are in high school). I think teens should be taught how to save, budget, write a check, use a debit card and keep track of money spent with it. And most of that should be started long before high school (like the saving part).
May 29th, 2008 at 8:11 am
I just did a post on this as well and most people tend to feel that teens and credit cards just don’t mix.
I’m still on the fence about it because I see both pros and cons. After wrestling with this for much time, my feeling is it really depends on the maturity and financial responsiblity level of your child. My 14 year old might not be ready for his own card but when my 10 year olds turn 14 they could be mature enough to handle it. Every situation is different.
As with everything, moderation and sound judgement are key. If you feel your child can handle the responsibility and you are ready to closely monitor yet another thing, then by all means, go for it. My personal feeling is my 14 year old can wait.
May 29th, 2008 at 8:14 am
At 13 I went to boarding school and my parents opened a checking account for me as well as added me to their credit card. Both made it easier for me to ask for and manage money while off at school. I was instructed that the credit card could be used for emergencies and gas money. It wasn’t until college that I ever used it for anything else. I did buy more CD’s than I should have one month and got a calm but very stern phone call from my Dad. That never happened again and he saw several of my paychecks that summer.
I applied for my own credit card at 18. There was no “Dad” safety net at that point so I was exceedingly careful with how much I spent. (See lesson learned above!)
Having a credit card from an early age taught me how to use one responsibly. I have always paid the balance in full every month, learned how to dispute a charge, and how request the removal of erroneous fees. It also forced me to talk about credit with my parents so that I was more comfortable asking questions once I had my own card.
Even so, it was a shock going out into the “real world” and paying for rent, food, and clothing. I don’t think many kids are prepared for living on their own, but I do think having previously managed credit is beneficial. One doesn’t have to use a credit card at 11 or 12 even if it is available. Quite frankly, having one but not using it was the best lesson I learned.
May 29th, 2008 at 8:17 am
Regarding the comment “I know very few teens who are financially educated enough to manage a credit card” isn’t that kind of the point? Here is an opportunity to improve their financial education and alert them to the potential pitfalls of credit.
They aren’t magically going to be more financially savvy when they wake up on their 18th birthday and start getting credit card offers.
I think these could be a great idea, but the parents need to ensure that they are monitoring the usage closely.
May 29th, 2008 at 8:41 am
One thing that isn’t mentioned is the incredible fees associated with these cards. The issuers are making out like bandits. My daughters wanted one, but when I realized that I had to pay a fee to “load” it, I said absolutely not.
Real credit cards are another thing. Do you as a parent really want a teenager to have the ability to run up debt in your name?
Let’s get real people. Stop drinking the Kredit Kool Aid.
May 29th, 2008 at 9:29 am
I think the same lessons in financial literacy can be taught by having a credit card that you use for family expenses and using that card in front of the child, and then sitting down with them and the bill and the household budget and going over the bill every month.
Most parents do their bill paying away from the children. Involving them is an important step in helping prepare them for the outside world.
By the time my 5-1/2 year old goes off to college, she will know how to balance a check book, dispute a credit card charge, budget for food, set aside money for savings and charity, read a credit report and live within her means. I don’t need a credit card company to charge exorbitant fees for that.
Whatever happened to just putting a folded up 20 in the shoe for the emergency cab ride? Or knowing the number of the local charity that gives rides for free if your friends are drunk?
May 29th, 2008 at 9:46 am
I don’t believe in using a credit card unless it is paid off in full every month even if it’s an emergency- mine is rarely used…. And I don’t even have a debit card - imagine that. I find cash works just fine, along with an old fashioned checkbook. And my credit number is excellent due to this.
So while it might be nice for kids to learn early, these things can be explained at home while you are paying bills. I don’t think they need their own credit card to ‘learn’… My first card was obtained in my 20’s - the good old Sears card - my own. My parents had advised me to pay it off in full as soon as the bill arrived…so I did. Having the card was a ’status’ thing…..
People can live just fine without credit cards so why push them at such an early age? It is NOT a necessity - it is better, in my opinion, to save up and pay in full up front for things - meaning if I use a card online or for convenience (instead of an online check payment), I will pay it off in full as soon as the bill arrives.
Why let a kid think that credit cards are to be used commonly when there are better and more credit-wise ways to do things? It’s just a bad mindset to get into so young, in my opinion.
May 29th, 2008 at 11:51 am
My heavens! Give adolescents who are notorious for lack of impulse control as a group - access to plastic? Bad idea. Give them cash $ & let them figure that out FIRST. Then if they prove responsible a pre-paid debit card and perhaps then on to credit - IF they have an income source to bail them out. But please teach them THRIFT and DON”T teach them about instant gratification & you will be doing them a BIG favor!
May 29th, 2008 at 5:18 pm
Wow, I missed a lot by running errands today! Lots of great discussion here!
You can all probably guess where I stand on this subject. I think Marci said it so well, I don’t have anything to add.
And I also agree with Bonnie. There are a lot of things children need to learn before they head off to college. If they have a good grasp on budgeting, delayed gratification, and taking care of their finances, then and only then should a credit card be considered. And even then, it’s not a necessity, so I wouldn’t push it.
June 5th, 2008 at 1:40 am
Congratulations on your beautiful blog. It’s nice, useful and a great counsellor on the christian perspective.
I agree credit cards make families fall in debth and finally some of them get divorce because of that.
God bless you so much and give you light enough to continue helping people to get out from debth and avoid credit cards.
Cferreira