Most parents want to leave their kids with a legacy of smart money decisions, and with a good start on their finances. Teaching kids about money and preparing them to make the right choices is at the top on the list of parenting projects. One common issue that comes up when deciding how to manage children’s financial lives is the decision of when to get your kid a credit card.
Getting Kids a Credit Card
Children are not legally permitted to sign contracts until the age of 18, so they are not technically permitted to have a card of their own until this time. Despite this, many kid have cards at a young age and some cards are even specifically targeted towards teens. These cards are typically provided by parents, who co-sign or assume responsibility for the debts of their children.
There is some controversy in personal financial circles about whether getting credit cards for kids before they turn 18 is a good idea, leading a lot of parents to wonder what the right choice is. The problem, of course, is that there are both pros and cons to giving your kids access to plastic during their youth.
The Argument for Early Credit
The biggest and best argument for getting children a credit card early is to help kids build their credit history. Part of your FICO score (approximately 15 percent) is based on how long you have had credit and how long your credit history is. A child who got a credit card when she was young is likely to have a higher credit score when starting out on her own than someone who gets her very first credit card for the fist time at age 18.
Another argument for getting kids a credit card is, of course, helping kids to learn how to use the card responsibly. Many teens are first exposed to credit in college when they might be enticed to get a card by gifts such as free t-shirts offered at booths on campus. These teens with no experience using credit might quickly get in over their heads and find themselves with several cards and a lot of debt. Credit card companies will often specifically target kids since they know kids who find themselves in this situation will simply turn to parents who will bail them out.
If you give your kids credit at a younger age, on the other hand, you have more time to monitor how they use the cards and to discuss responsible buying habits. A condition of the card might, for example, be that the kids pay it off every single month.
The Argument Against Early Credit
One argument is that it teaches children early on to rely on plastic instead of cash, making it more likely that they will get into debt trouble with credit later. Another risk is that studies have shown that people tend to spend more with credit, since they don’t associate the spending with cash in the same way they do when they actually have to part with physical money. A credit card could prime kids to a life of spending more than they otherwise would as they just whip out their credit cards.
What Should You Do?
Parents who want to make the right choice should weigh the arguments carefully and should consider their particular child’s level of responsibility. Those who want to give kids the other lessons that go along with responsible credit card use should typically wait until their children are able to foot the bill themselves without any help for mom and dad; otherwise, the lesson will simply be that credit allows you to avoid spending your money.