Should Teens Have Credit Cards?

Teach Teenagers Financial Responsibility with Credit and Debit Cards

Nov 12, 2009

Many parents wonder if their teenagers should have credit cards because they want to teach their teens to be financially responsible adults.

According The Wall Street Journal and Sallie Mae, college seniors averaged over $4000 in credit card debt in 2008. Many young adults don’t learn how to be financially responsible and find themselves with large amounts of credit card debt when they’re graduating from college. If parents teach their children the value of money and how to use credit cards, they have a better chance of becoming financially responsible adults.

Helping Teens Build a Credit History

It’s dangerous to give teens credit cards without teaching them how and when to use them, but it can also be detrimental to graduate from college without a credit history. To have a good credit score, a person must have a credit history. If someone has never had a credit card, it will make it harder to rent an apartment, buy a car and anything else that requires a credit check. However, parents should not cosign a credit card with their teens without preparation.

Preparing a Teen for a Credit Card

The first step in teaching teens financial responsibility is to set them up with a checking account with a specific budget. For example, a parent may set a clothing and eating out monthly limit of $150, so that parent could open a checking account for his teen with that amount of money. The parent should teach the teen how to balance a checkbook and consistently check in regarding the amount of money left in the account and to see if the teen is keeping track of the money.

The next step in teaching teens about money is giving them a debit card to correspond with their checking account and teaching them how to use it. If the teen has a job, the money she earns should be put into the checking account, not the parent’s money. To really teach teenagers the value of money, they should be responsible for making money to fund fun spending such as video games, going to the movies with friends and new designer boots. Once a teen has mastered her checking account and debit card and used them responsibly, the parent should consider discussing credit card options.

Credit Card Options for Teens

Parents can cosign a credit card with their teen, so they are able to keep track of the teen's purchases. However, this does make the parents liable for the teen's spending and debt, which can affect the parents’ credit score if the credit card is not used responsibly. This is a risk that parents take when they open a credit card account with their teens. To reduce this risk parents should restrict the spending limit on the card to a low amount such as $200. That way, parents can make sure that the credit card gets paid on time each month.

Before cosigning a credit card with a teen, parents should discuss the proper uses for debit cards versus credit cards. Instill in teens that credit cards should never be used to buy clothes, dinner out with friends, coffee at Starbucks or any other unnecessary purchases. This is what a debit card and checking account are for. Let the teen know when he should use the credit card such as if the car breaks down and he needs to get it towed. Use it for emergencies or only when he knows that he can pay the balance that month.

Parents should let their teens know that they don’t have to use their credit cards to build credit history; they just need to have one. Teens should get credit cards to build their credit history after proving they are financially responsible with a checking account and debit card and after discussions around the use of credit cards.

The copyright of the article Should Teens Have Credit Cards? in Kids & Money is owned by April Bowles. Permission to republish Should Teens Have Credit Cards? in print or online must be granted by the author in writing.