Is your child ready for a credit card? Last week Bargain Babe shared how her allowance helped her learn to save money and that got me thinking about what my parents did to teach me about finances. I began working at 16, got my first debit card that same year, and was given a credit card at age 18. Among my friends I am one of the few who has no credit card debt and has managed to maintain a high credit score (705). I feel that using a credit in a controlled situation helped me to learn successful habits. What do you think?
Is your child ready for a credit card?
Do they track spending and saving? I started working at my dad’s store when I was 16. This was when I was given my first debit card. I feel that a debit card is an important step to understanding credit. While a debit card doesn’t give you unlimited “free” cash it gets you used to using plastic instead of money. When I got my first debit card there were times I was surprised to find my savings drained. Had I really spent that much?! Yup. Using a debit card first made me aware of the need to keep track of purchases and resist spending aimlessly. I attribute this first card as to why I am so responsible with credit today. Before getting a credit card, it’s important to assess if your child is ready for this type of responsibility. Do they have a debit card? Have they managed money responsibly in the past? Do they understand the value of a dollar? If you can’t answer yes to all of these questions a credit card may not be the best idea for you child at this point.
Can they keep their word? My parents signed me up for my first credit card when I went to college. The card was to be used for school supplies, gas, or emergencies only. Occasionally, my parents would give me permission to buy myself a gift (a pair of shoes, pay for dinner etc.) but this was always subject to their discretion. Not only did this keep me from racking up high bills but it also showed me how quickly these items add up! $150 on gas a month…what?! By designating how I could use the card (if I used it for something else I had to pay that WHOLE bill) they helped me start to build my credit without giving me too much freedom.
Who’s going to pay the bill? Are you paying for the credit card bill or is your child? My parents paid my credit card bill while I was in college. They did this because I was taking part in many extracurriculars and working at unpaid internships. If you are not able to pay your child’s credit card bill, and they are not in a position to pay it on time themselves, then they are not ready for a credit card. Bailing them out of a bill (or worse, months of accumulating credit card debt) would be worse than not giving them a card. It teaches them that it’s okay to overspend! That’s a definite no. Set consequences for failure to meet a payment or going over your decided budget. Whether you’re paying for the card or they are, it’s important to set a budget that teaches them to live within their means.
Can they stretch a low limit? My first credit limit was $300. As I grew more responsible (and began making payments myself) the payment increased. I now have $1,000 credit limit, but I have never spent this much on the card. Setting a low credit limit will prevent overspending and teach responsibility. With a smaller limit you are more conscious of how you are spending your money. For example, when I lived away from school my parents told me I could begin using the card for groceries. I had $300 a month for groceries and gas, so I found ways to stretch it out. Whether it was using reward points or coupons, I found a way to make my money last.
Do they understand interest? Many of my friends have fallen into debt because they weren’t educated about interest rates. For this reason, they didn’t foresee how much damage their loans or overspending would amount to. Make sure your children don’t fall into this trap by explaining interest. Use a credit card debt calculator to explain or have children spend an hour searching about compound interest, credit scores, and interest rates. A few hours of reading could save thousands down the road.
Would you get your child a credit card? At what age?