Money makes the world go ‘round, or so the saying goes. In modern society, though, you have to tweak that saying a bit. It’s more like plastic makes the Earth keep rotating.
With technology becoming more and more integrated into everything people do, banks and businesses are increasingly relying on computer hardware and software systems to create, maintain and transfer financial records, as well as to complete transactions. Couple this with being on the heels of the Great Recession and you have a recipe for rampant credit card use.
Admittedly, there are some pros to letting kids into the credit card club. One of the biggest is that credit cards help young people establish a good credit rating. That can give them a huge boost when they’re trying to do basic things like rent an apartment or apply for a school loan.
Secondly, for better or worse, credit cards reflect the way the real, contemporary money system works. According to Experian’s National Score Index for 2012, in 2011, the average number of credit cards per person in the United States was roughly two, showing that, while people generally aren’t going “hog wild” with the number of accounts they have, most Americans are familiar with the credit card system. Many individuals have far more than the average of two cards because, although they aren’t maxing out their available credit, they want the flexibility of having more accounts with different rewards and interest rates. If you expose your kids to credit cards early, they will be more comfortable with this common method of payment and will have some experience with the basic lending and repayment process.
On the other hand, one of the basic keys to making credit cards work is having a solid repayment plan. In other words, credit cards are simply cash flow tools. They let you manipulate when you pay for things rather than determining how much—ideally, you buy the same amount when using credit cards as you would if you had the immediate cash. If your kid can’t plan ahead a little bit and figure out how he’s going to handle that monthly bill (babysitting, extra chores, etc.), he’s probably not ready to carry a card.
Related to this idea is the concept of responsibility. Some kids, even when they are cognitively mature enough to design a way to repay that, on paper, would work, they simply are not emotionally and socially mature enough to stick to the plan. For these kids, credit cards might not be the best choice, because they are more likely to buy on impulse and let good intentions go by the wayside. If your child has shown he can be responsible with saving, buying his own things after making goals and generally doing what he’s asked, a supervised card might be doable.
Another worrisome issue with credit cards is that they are horribly abstract. They represent money and look the same regardless of whether your child has charged $1 or $1,000. From this standpoint, any kid who wants to use one first should have a truly solid understanding of the value of tangible coins and bills. They also need to grasp that, unless the credit card company is offering 0% interest (and remember, this is usually just for an introductory period), they will pay additional money on everything they charge for the privilege of borrowing. If this foundation isn’t there, kids can view credit cards as “free money” and rack up huge bills without fully having their heads around the possible consequences.
The Bottom Line
Credit cards do have some advantages in that they let your child experiment with cash flow and get some experience with basic lending and repayment. They are not something to be treated carelessly, however, so as a parent, your child shouldn’t have one until he already has demonstrated some responsibility and has the cognitive, emotional and social skills necessary to handle the bills and control his spending. If the card is for emergencies only, then you need to define what counts as an emergency clearly. One option is to use Bankaroo as a stepping stone, letting your child meet and set specific goals before turning him loose with plastic.
Quick Final Tip
Not all jurisdictions in the United States and around the world allow minors to have credit card accounts without parental consent, mainly due to issues related to contract law. They usually allow parents to add kids as authorized users on accounts, however. To protect your own credit rating and learn more about your child’s credit card rights, contact your local, state or national financial institutions, law enforcement or business agencies, credit bureaus or government representatives. Information is also available for specific regions online.
Experian. (2012). What is your State of Credit? Experian. Retrieved February 21, 2013 from http://www.experian.com/assets/live-credit-smart/images/data-spreadsheet.pdf
Sandburg, E. (2009). Minors seeking credit cards will need a helping hand from parents. Creditcards.com. Retrieved February 21, 2013 from http://www.creditcards.com/credit-card-news/sandberg-getting-credit-card-when-under-18-1377.php