Once your teen becomes of legal age, he or she can get a credit card whether you like it or not. This is why, it is best to start teaching them financial responsibility from a very early age. This can start from when they are in school – take them grocery shopping with you, for instance. When they get older, you can try things like giving them pocket money for something they need for school and checking to see if they really buy school supplies with it. If they come home with the latest gadget instead, this is a good sign that they may not be responsible enough to handle credit yet. Like they say, the best financial policy is honesty.
Teens must learn to live within a budget and a specific amount of income, regardless of whether it is theirs or you are providing it. Weekly allowances must be budgeted so that they last the entire week. If they work part-time, this principle is valid as well. It is always a major problem when people are introduced to credit before they have learned to live within their means. Giving them credit cards prematurely may cause them to plummet into debt, which you will have to return, as they are underage.
Learning to budget well is only one consequence of being responsible. Responsibility or lack thereof takes many forms. If your teen is constantly skipping household chores or asking for homework extensions, you can certainly take this as a bad sign.
If you have established that your kid is responsible and ready to try their luck with credit, you must choose between secured, unsecured, and prepaid credit cards. Prepaid cards are on the lowest level. They are very safe, because it is impossible to go over the limit. You can get prepaid cards anywhere, from grocery stores to gas stations, by MasterCard or Visa. Prepaid cards are often synonymous with gift cards. In fact, credit is not involved in these cards at all. That can obviously be a good thing. On the other hand, such cards will not help your kid build a credit history.
Secured credit cards are a step up. With these cards, you deposit a certain amount at the bank, which serves as collateral for the balance. Your teen cannot exceed the limit you have set. At the same time, it is possible to build a credit history because the bank will report your payments and balances to the respective credit bureaus, which then establish a rating. It is important to have knowledge of what your kid is doing, as you will have to cosign the card. If he or she misses payments, this will reflect on your credit as well. You might consider getting them a low-interest credit card.
Finally, unsecured credit cards are the riskiest tool out there. You have to trust them completely. There is always the risk that they won’t stick to the preset limit and go over, with the respective consequences.
If you choose a secured or unsecured credit card, make sure you have a bank that allows you to track your child’s spending online, so that you can talk to them about how they are using the card.
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