Many parents want their teens to learn how to use credit responsibly before they move away from home, and part of this training may include allowing teens to use credit cards.
Parents have several options if they want to do this. The easiest is simply adding a child as an authorized user on an existing credit card. Another option is co-signing with the child for a secured credit card for the teen. Both these options confer risk to the parents’ credit score, because the cardholders are ultimately responsible for irresponsible use of the card.
Parents who allow teens to use credit cards succeed by creating an actual written contract that spells out what teens are and aren’t allowed to spend on, how often teens must report their purchases, how parents are to be reimbursed, and what weekly or monthly spending limits are. The contract should also spell out penalties for breaking the terms, and what actions will result in having the card confiscated.
Before using a credit card, the teen should understand the basics of credit limits, interest rates, and minimum payments, and they should understand how long it takes and how expensive it is to pay back a $50 purchase making the minimum monthly payments.
If you have more than one teen, you’ll need to work with each child individually. Some teens are far more responsible than others, even if they’re siblings raised in the same household. While you want to keep the rules as consistent as possible, you may have one child that needs stricter limits, at least until he or she proves worthy of having the limits lifted.
Mishaps with teens and credit cards usually involve things like treating friends to movies, pizza, or other goodies, accidentally leaving credit cards at the mall or at a friend’s house, not keeping track of purchases, or giving into temptation and spending too much.
Small mistakes should be addressed and forgiven if the child owns up and makes restitution. But sometimes parents do have to step in and take a teen’s credit card away. It isn’t pleasant, but with some kids, it’s the only way they’ll learn. It’s time to take away a teen’s credit card when:
- They repeatedly go over their spending limit and shrug it off
- They lose the card more than once
- They allow a friend to use the card
- They get into big trouble otherwise, such as by skipping school, failing classes, or repeatedly breaking curfew.
There’s no one “right” age at which a teen is ready to use a credit card. Some 14-year-olds are remarkably responsible, and some 19-year-olds can’t be trusted with more than a five dollar bill. Your financial situation, including your ability to cope with overspending should your child slip up, and your child’s maturity level will determine whether or not he or she can handle the responsibility of using a credit card.