It doesn’t take kids long to recognize the power of plastic. My oldest daughter is barely six, but if my wife or I try to use the “I have no money…” line to get out of buying another toy or treat, she’s likely to say, “Well, use your credit card.” The point being, she gets how to use them, she just doesn’t really understand how they work. But, sooner or later (much later, I hope), she’ll be applying for her own credit card. And, like all of us, long before that she should have a solid understanding of their uses, abuses, and the implications of both.
Should you give your kids a credit card? And, if so, when?
Prepaid Can Payoff
Obviously, my kids are much too young to even consider it. But when is it appropriate to hand over a card to a child? Believe it or not, it’s not unheard of for teens or even tweens to be packing plastic in their wallets. Rather than hand their kids cash for their allowance or birthday money, parents will load the currency onto a card.
It gives the kids an early lesson in managing “virtual” money, has the advantage of being much more flexible than a single-store gift card since they can use it anywhere credit cards are accepted, and even provides a degree of security since the card can be cancelled if it’s lost or stolen. The downside is that these cards come with myriad built-in fees that can quickly chip away at the balance. Then again, maybe there are lessons to be learned there too.
Student Credit Cards
Eventually though, your kids will want and need to graduate to a “real” credit card. During the summer break after my first year of university, I flew out to B.C. to meet some friends. Needing a car to get around, I popped into the nearest discount car rental agency. Unfortunately, they required a credit card – or $300 cash – as a deposit. Lacking the former, I handed over a big chunk of my intended spending money to get my hands on a set of keys. Once I was back home, I applied for the first student card I could find, beginning the lifelong process of building a credit score.
Student credit cards are a great start for many reasons. You can usually find one with no annual fee, they tend to charge moderate interest rates on balances (15 to 20 percent), and they have relatively low credit limits, so you can’t get it too much debt-trouble.
Perhaps, most importantly, they’re relatively easy to qualify for, even if you don’t have much (or anything) in the way of credit history. The fact you’re attending college or university is often enough for you to qualify. (The banks are hoping you’ll stick with them when you graduate to that high-paying corporate gig.)
Co-sign, With Caution
If you want your high-school aged kids to start learning life in the cashless world, you’ll likely have to co-sign on a card with them. While it does give you a great opportunity to show your kids how much you trust them, you will want to closely monitor the account, and minimize the credit limit so you don’t end up on the hook for months’ worth of future allowances.
Regardless of what age and what type of card you help your kid start off with, set them up with a solid understanding of how powerful – and dangerous – a credit card can be if used improperly. Then, when they do make the inevitable beginner’s mistakes – like forgetting to make a monthly payment – help them learn the lesson from it, so they’re better equipped for life.