Give my kid a credit card? Are you crazy?

Young people can learn to be responsible money managers by using credit cards.

“Creating healthy money habits, including avoiding impulse purchases, can be a challenging concept for parents to instill in their children,” says Jinnifer Ortquist, Michigan State University Extension Educator.

Giving your child a credit card may seem to be a dangerous idea, but the purpose behind this is to teach your child about how to use credit.  Credit card companies often allow the cardholder to add additional cardholders on their account.  This could be a teaching opportunity for your adolescent with some mandatory homework in advance by both the parent and the child.  For example, requiring the child to read the fine print and explain to the parent how the card works – fees payments, interest charges, and rewards.  It could be a tool to utilize the child’s allowance and teach how to track spending. 

Not all adolescents should have their own credit cards. But for parents who are confident and responsible with using credit cards it may be a viable option for them and also a tool to help teach their children how to use one. Under the Credit Card Act, unless a young person earns income that can be documented or is 21 years old, the individual can’t own a credit card. If you chose to list your child as an additional user on a card from a local credit union or other financial institution, it’s important to understand that the person who is listed as the account holder is ultimately the one who is responsible for paying the bill. It will also affect your credit score if payments are late or charges go beyond the credit limit.

Also, find out if there are built-in ways that make it easy for you to monitor your child’s use of the credit card. The card may have the option to set a transaction amount and then have a text or email sent to you, for example, each time a charge of $5 or more is made. In addition, check if you can receive an electronic notice if the balance reaches a designated amount. The ability to check the card activity online should also be available to add to the parental controls.

One advantage of having your child as an additional user is the ability for the child to secure credit later.  Your child will build a credit history that may enable securing a personal credit card in the future without a co-signer.

Michigan State University Extension advocates that understanding how to use a credit card is ultimately about how to manage money. No matter what your age, it pays to be smart when choosing and using a credit card. It’s important to read all correspondence sent to you by your credit card company. Contact your credit card company and ask them to explain anything in the notices that you do not understand. For information on navigating the credit card process, visit the Consumer Finance Protection Bureau Guide on how to find the best credit card.

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