Children and Credit Cards: Do They Mix?
Teaching children about money, finances, and debt is an important task, particularly in these current financial times. Explaining how credit cards can be used as financial tools is important too. Simply not teaching your children about credit cards can be a dangerous proposition; college and university campuses are filled with free credit card giveaways and there are numerous news reports of college students racking up insurmountable debt.
The best place to start is with the basics of credit. It is important for your children to understand that credit isn’t free. The credit lender is essentially giving you the right to use its money for a set period of time before you have to pay it back, and in some cases, pay interest and other fees. Credit is the sale of money for a specified price. Credit Card companies charge fees and interest in order to compensate themselves for the costs and risks involved with extending the credit in the first place.
In most cases, a young person under the age of 18 cannot legally enter into the contractual agreement required to apply for or obtain a credit card (there are limited exceptions including children who have been legally emancipated or married). However, this isn’t to say that someone under 18 couldn’t fill out the paperwork in his or her parent’s name and obtain a card without parental knowledge. To ensure this doesn’t happen in your family, you should check your credit report on a regular basis and talk to your child about debt and credit.
Of course, many parents choose to provide their children with a card tied to the parents’ account or credit history. For example, you can give your child a card connected to one of your current credit accounts. This way, you can monitor any purchases and immediately discuss them with your child.
You can also cosign an application on behalf of your child, allowing him or her to open up credit accounts. However, if you do so, ask that you get a copy of the bill. This will allow you to monitor your child’s purchasing history and also ensure that the bill gets paid on time. Both you and your child are liable for the debt and any fees. Consequently, if the bill goes unpaid, it can hurt your credit rating and collectors may start calling you.
Another option exists for getting your child a credit card with some restrictions: secured credit cards. A secured credit card is one that is tied to a savings account. The spending limits are usually related to the average account balance and any lines of credit are backed by that savings account. Such a card allows your child to get the experience of using a credit card, and build a credit history, while still giving you some peace of mind.