Practice, early and often, with a credit or debit card can help your child form healthy money habits.
Increasingly, parents are trusting their tweens and young teens with credit cards. The 2019 Parents, Kids and Money Survey by T. Rowe Price shows that 17% of kids ages 8 to 14 have a credit card, up from just 4% in 2012.
Either credit or debit cards can be good teaching tools, but each one has differences parents and teens should consider.
Debit cards don't let teens pile up debt, but credit cards can help them build credit and offer better consumer protections. Look at the features of each type of card, along with the pros and cons, to make the best choice for your teen.
[Read: Best Secured Credit Cards.]
How Old Do You Have to Be to Get a Credit Card?
You must be at least 18 to get a credit card in your name, and it won't be as simple as applying and getting approved. The law requires proof of income from ages 18 to 21 to show your teen can repay charges. And a monthly allowance doesn't count.
If your teen is younger than 18, you still have options. You can add your son or daughter as an authorized user to one of your accounts.
Authorized user status means your teen can make purchases with the card, and the account activity will be reflected on his or her credit report. But the primary cardholder alone remains financially and legally responsible for the balance.
Does that mean you can get a credit card for your 13-year-old son? Well, the answer depends on the card issuer's authorized user policy. No law establishes how old authorized users must be, but some credit card companies set the minimum age at 15 or 16. You can also find card issuers that set the age threshold for authorized users at 13 or 14.
If you're leaning toward a debit card instead of a credit card, some banks offer cards to kids as young as 8, as long as a parent is an account co-owner. A common age range for checking accounts open to minors is 13 to 17.
Should I Get a Credit Card for My Teen?
There are several reasons that you might consider getting a credit card for your teen instead of or in addition to a debit card. At the top of the list: Adding your teen as an authorized user can help your son or daughter build a credit history.
Credit card account activity, including payment history and balances, can help your child establish a credit score. This can pay off later, when your son or daughter needs to borrow money to buy a car, or to get a mortgage on a home. Debit cards do not affect your credit.
Having a good credit score can make getting approved for new credit and borrowing at favorable interest rates easier. Plus, it could save you the trouble of having to co-sign for a loan, which could affect your credit score.
Credit cards also provide better fraud protection for your teen compared with debit cards. If your teen loses his or her card, or someone takes it on a shopping spree, federal law limits your liability to $50. Some issuers won't charge you anything as a cardholder benefit.
Aside from those two key benefits, credit cards may have other features that you or your teen might appreciate. For example, a card with cash back rewards could help you save money if the cash back is applied as a statement credit or used to start a savings account for your teen. Other features, such as extended warranty protection or roadside assistance, can also come in handy.
What Are the Downsides of Credit Cards for Teens?
The most obvious drawback of giving your teenager a credit card is that it could lead to overspending and running up debt. "Teens who have a credit card must learn that it is a convenience, not a ticket to live outside their means," says Freddie Huynh, vice president of credit risk analytics at Freedom Financial Network.
Whether this risk becomes a problem for teens depends largely on their education. Specifically, parents can reduce the risk of teens getting into trouble with credit card debt by sharing the basics of how credit cards work and how to use them responsibly.
Work with teens to help them understand how to keep credit card spending in check so that debt doesn't become an issue, Huynh says.
The silver lining is that if a teen makes some mistakes and accumulates debt on a credit card, parents can also help with a plan for paying it off. This can be a hard-learned lesson but could also help reinforce the idea that a credit card isn't free money. Teens have to pay back what they spend, usually with interest.
Why Should My Teen Have a Debit Card?
A debit card can offer both flexibility and control for parents and teens. Parents can set up a checking account for their teen, linking their accounts and listing themselves as co-owners so they can monitor account activity. Your teen's account can also be a tool for encouraging open discussions about money.
"When teens have a debit card linked to a parent's account, it provides two benefits: The parents can access the account to transfer funds, and teens have to actually talk to their parents when they need additional money," says Joseph Nowland, president and CEO of Jax Federal Credit Union.
The same goes for a prepaid debit card that requires parents to load money onto the card via cash, direct deposit, checks or bank accounts. Each time you reload the card, you have a chance to talk to your teen about money and budgeting.
At the same time, teenagers learn through firsthand experience how to keep tabs on their spending. This is a skill they'll need when they start budgeting as college students or new grads.
Giving teens a debit or prepaid card can also keep them from creating debt. Teens can only spend the money parents load onto the card.
If you set up your teen with a bank account that has a debit card, you can take steps to help your son or daughter avoid overspending. You can opt out of overdraft protection, or use parental controls for the account that let you limit purchases.
Should I Say 'No' to a Debit Card for My Teen?
Debit cards have some drawbacks. For one, their fraud protection isn't as strong as credit cards. Debit cards aren't governed by the same rules as credit cards where fraud is concerned. If your teen loses his or her debit card, or it falls into the wrong hands, you could be responsible for any fraudulent charges.
Another disadvantage is that debit cards won't give your teen a head start on building credit. Although debit cards allow teenagers to practice managing their spending, they don't get any credit score benefit from using them.
[Read: Best Rewards Credit Cards.]
How Do I Choose the Best Credit Card for My Teen?
You've weighed the pros and cons of debit cards and credit cards and have settled on a credit card for your teen. Next, is your teen old enough and responsible enough for a credit card of his or her own? If not, you may decide that adding your teenager as an authorized user on one of your credit cards is a better choice.
If you're looking into credit cards for teens that they can apply for on their own, weigh a secured card against an unsecured card. A secured credit card requires a cash deposit to open, and the deposit usually doubles as the credit limit.
A secured credit card with a small credit limit could keep teens from racking up a huge balance. And secured cards still build a credit history.
An unsecured credit card -- the most common type -- wouldn't have the cash deposit requirement, but your teen may be limited to student cards if he or she applies solo. That's not necessarily bad, though, because student cards are often available without annual fees and may offer rewards. Your teen may be able to graduate to a better credit card with a year or two of responsible use under his or her belt.
With any credit card you and your teen are considering, remember to look at the basics. That includes the annual percentage rate charged for carrying a balance, the card benefits, such as purchase or travel protections, and any rewards or annual fee.
What Are Some Tips for Helping Teens Use Credit Cards Wisely?
Getting a credit card as a teenager is a big financial step, and parents need to set some ground rules for card use. Nowland's two teens, for instance, each have a credit card and know they should only use it for emergencies. Each also has a debit card earmarked for gas, food or other everyday purchases.
You might consider a similar system with your own teens, or something completely different. As you're laying down the rules, make sure you cover:
-- What kind of card purchases teens can make.
-- What their monthly spending limit is.
-- Who is responsible for paying the bill.
-- What the consequences are for misusing the card.
Remember to communicate openly with your teen about the credit card. Talking regularly about credit, banking and money in general can help equip teenagers to handle their finances with confidence as adults.
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