Parenting: Teens and credit cards

David Murphy's kids like to shop, but they did it with out a credit card until they were in college.

David Murphy says credit cards can be a help with teenagers, especially after they get to college. But there are some pitfalls.
September 22, 2011 7:34:46 AM PDT
Like cell phones and drivers licenses, teenagers often crave credit cards. Some parents give-in early on this argument (when their credit is good enough to help their kids get cards, or when they're willing to hand-over their own plastic). This makes it harder on the rest of us trying to ease our teens into the tricky worlds of money and debt. I did not give my kids access to credit cards during high school, since all they had were part-time, low-paying jobs with salaries that couldn't possibly cover spending splurges. Instead, we opened checking accounts, taught the kids how to access their accounts online and how to use their ATM cards. We also encouraged them to demonstrate an ability to save and manage their money. In this way, we felt more confident in our children's financial skills once credit cards became a reality.

Once in college, however (or once they're out of high school earning a regular wage), credit cards become highly desirable for kids and parents. For one thing, charge cards are the main way a young person can begin to build a credit history, essential if they expect to take out loans later in life for cars or homes, or even if they plan to rent their own apartment down the road or obtain auto insurance or their own cell phone. A good credit history (where credit card accounts are paid off on time, and ideally in full every month) is the main way banks and other businesses judge whether a potential customer is responsible and a good risk. What's more, once kids get to college, they need to make expenisive purchases like text books, and it's much more convenient to let them handle this on their own, even if you're planning on reimbursing them later on.

Have "The Talk"

Long before a credit card is actually introduced, you should have a frank discussion with your son or daughter about how credit works, with special emphasis on why it's a bad idea to charge more than you can pay-off in any given month. I explained it this way: banks (and credit card companies) exist to make money. They do this by making buying things very convenient and essentially counting on a portion of customers to abuse this convenience. In those cases, over-extended customers who charge too much and can't pay-up on time are slapped with exorbitant interest payments. 19% is a pretty common rate. In this scenario, even small oversights and mistakes can lead to an extra $20 on their next bill, which then makes it harder to pay off. A few further indiscretions and before you know it, you're spending an extra $50 or $60 every month just to keep up with the card. I told them they may as well be taking $50 out of their wallet, grabbing a match, and burning the money.

On the other hand, it's important to explain the value of credit cards and building good credit. They should understand that good financial behavior early on in life directly affects their ability to make the big, more important things in life happen for them later on (like home ownership, buying cars, or raising a family). Only after they clearly understand these basics, are ready to actually begin using a card. has a nice list of tips for parents on how to get good credit started for their kids. One suggestion is to make your child an authorized user on your account and to let them use your card, initially. The reasoning behind this idea is as follows: it's essential for parents or guardians to keep a close eye on their children's initial credit card use and to council kids on whether they're demonstrating proper financial restraint. Using your card pretty much ensures that you're going to stay on top of this, since you more than likely regularly check your own statements. Your child also benefits because, as an authorized user, if your credit remains good, your child's credit also gets a bump. The danger, of course, is that your kid goes on a wild spending spree that winds-up hurting your credit!


In our case, we had the kids apply for their own cards but they used us as co-signers, meaning the bank looked at our financial background to bolster our kid's chance of getting the card (and also made us partly responsible for keeping the card in good standing). Next, we set-up the online portion of the account ourselves. We then shared the user name and password with our kids so we could all check in on the statements and spending.

College students or young wage earners can also try to apply for their own cards, but in the wake of the credit melt-down, there are no longer as many opportunities for people without a credit track record to get cards. In short, as parents, you may find that you have to co-sign to get your kid's card going. It's a pretty nice thing to do, given that you're putting your own credit at risk, and your child should understand the ramifications if this generous "help". Of course, the credit limits for college-aged kids tend to be pretty low. My daughter's initial limit was only $500 on her first card, which made it hard to cover the cost of books in a single month. It was raised later, but only after she had gone six straight months without problems.

Also, have your kids think about a basic, low-interest card. As you'll see in the above linked article, incentive cards usually cost more and have higher interest rates which make them totally not worth it for a kid who may have to carry a balance occasionally and doesn't have to money to afford any extra fees.

Tricks, no treats

Also, look-out for tricks. My daughter signed-up for her first card (with a company that had inundated our mailbox with offers, by the way), only to find fees for several services on the first statement that she either didn't order, or was tricked into ordering. One of these was for a credit report. Honestly? A kid with no credit history and years away from buying a house or a car needs a credit report? No. What she needs is a card without extra fees so she can squirrel away every last dime! It took a couple of months, but we were finally able to get rid of the fees. The next trick came when the company changed the size of the envelope in which it was delivering its bills, so that it looked like one of the literally dozens of junk mailings they were also sending. As a result, my daughter missed a payment and was assessed a late fee. We dropped that card and got another one that so far, hasn't been involved with this sort of malarkey. Changing cards often, I've heard, can hurt your credit score, but again, at that stage of the game, she had no credit anyway, so it was worth it.

Finally, have your child's credit card bills delivered online or sent to your house, not to your child's college mailbox. Crooks are everywhere, even on college campuses, and something as sensitive as a credit card statement should not be left lying around a dorm room, nor in the campus dumpster.

---David Murphy

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