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Should You Let Your Teen Have Access to a Credit Card?

Sep 07, 2018 4 min read Ben Gran

Key Takeaways

  • Your kids' financial education can include learning how to manage credit cards.
  • Applicants need to be 18 before they can qualify for their own cards.
  • Prepaid debit cards can be a good stand-in for teens who are under 18.

 

As any parent of a teenager knows, money can be a scarce commodity. Beyond the casual handout, teens need money for gas, school activities, educational fees, and daily living expenses. When those ventures don't accept cash, the inevitable question results: Should I give them a credit card? The short answer might be yes.

 


“Teenagers with credit cards" might sound like a risky proposition, especially in the era of online shopping and overnight shipping, but credit cards are part of everyday financial life for most Americans, and teens will need to learn how they work.

If your teen is responsible with money and eager to have more control of spending, a credit card can offer convenience and jump start their financial education for college.

There are a few ways that parents can approach the credit card question, and there are pros and cons to each depending on your overall situation.

Below are a few options (and the potential benefits and drawbacks for each):


1. Authorized user

In order to apply for a credit card, you have to be 18 years old. If you want to help your younger teen get a credit card, you can add them as an “authorized user" on your account. Having an authorized user is like sharing the same credit card account, just with two different copies of the card.

There are pros and cons to this approach:

Pros:

  • Convenience — As an authorized user, it's easy to let your child make purchases without you being physically present. For example, they can use it for back-to-school shopping, sports equipment, activity fees, or nights out with friends.
  • Account monitoring — Since you're sharing the account with your teen and receive the credit card statement each month, you have full visibility into the transaction history, and you have the option to revoke the child's access to the card at any time.
  • Limiting risk — Even though they're an authorized user, your child is not responsible for paying the bills. This means they are insulated from credit card payment missteps as they learn how to use credit responsibly.

Cons:

  • Risk of overspending — If your kid does not use the card responsibly, you could be stuck with an oversized credit card bill. You are responsible for everything your authorized users buy with your credit card account, even if you didn't approve of it in advance.
  • Does not build a credit history for your teen — Authorized users do not really exist in the credit system, so they can't build a credit history.

     


2. Prepaid cards

Prepaid cards are not credit cards; they are considered “debit cards" that are funded in advance with cash. However, a prepaid card can be a good option to give your teen convenient access to money, especially if they don't have a bank account.

Pros:

  • Convenience — It's easy to hand your teen a prepaid card that is loaded with cash. The cards are used the same as credit cards or bank debit cards at any point of sale system at a store or restaurant.
  • Safety — It might feel safer for your teen to carry one prepaid card in a purse or wallet than to carry a stack of cash.
  • ATM withdrawals — Your teen can use the prepaid card to withdraw cash from an ATM, just like a bank debit card. (But without exceeding the limit of the amount of cash on the card.)

Cons:

  • Prepaid cards do not help your teen build a credit history.
  • The fine print – Different prepaid cards might charge fees for ATM withdrawals, monthly account fees, or additional fees if you load cash onto the card at an out-of-network location. Make sure you and your teen understand the full costs and implications of using the prepaid card. It might be better to get your teen a checking account with a debit card.

     

 

3. Credit cards (for ages 18+)


Once your teens reach the age of 18, they can apply for their own credit card. This is a big step toward financial independence, but not every teen is ready for the responsibility.

Pros:

  • Your teen can start building a credit history and becoming financially independent.
  • Your teen might qualify for a larger line of credit than you can provide via prepaid cards.
  • If your teen wants to begin with a simple, low-risk credit card, they can use a “secured credit card," which has a firm spending limit that is funded with an upfront cash deposit. This type of credit card helps build a credit history while also avoiding the risks of overspending.

Cons:

  • It can be risky to start using a credit card at a young age; some young credit card users spend too much and do not understand the ramifications of accruing high-interest debt.
  • If your child is not ready to use the card responsibly, the credit card can become a source of stress, debt, and damage to their credit score.

     

 

What you can do next

Talk with your teen about how credit works. Together, research whether a credit card or prepaid debit card makes sense for them, and read the fine print on fees, risks, and possible downsides.

 

Ben Gran is a freelance writer based in Des Moines, Iowa. He writes about personal finance, financial services, technology, and business. Major clients include PNC Financial, Kabbage and Quizzle.

 

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