It was only the other day when your kids used to look in awe at the shiny cards on your wallet and ask you what they were meant for. You may have given them different answers depending on their age and they just moved on to another question. But hey! Now they are all grown up and you are wondering when the right time to talk about credit cards.
For any smart parents, you should know that talking to your kids about money is required to start early on in life. That means by their teenage years they should have a basic money concept. Therefore, the best time to talk about credit cards should be as early as their teen years.
Is Your Teen Ready for Their First Credit Card?
Its true teenagers have to wait until they turn 18 or older to apply for their own credit card, but financially savvy parents won’t wait that long. The main aim is to teach your teen about credit and financial responsibility before they venture out on their own. That’s why choosing the right card for your teenager is essential. The most important factors to look for are their age bracket, maturity level, and financial skills.
The Tweens (11-13 years)
If you haven’t opened a bank account for your tween, then it’s time to do so. Being able to access debit or prepaid card connected to their bank account is a great financial step. They will learn how to save by making direct deposits from their allowances which they can load directly onto their card. In addition, the prepaid card will also teach them how to have a personal spending plan.
Older Teen (14-17 years)
Since a teen can’t get a traditional credit card with their own name, your best option is to add them as an authorized user on one of your accounts. As the primary account holder, you will have full control of the account and supervision. Therefore, make sure your teen is keen on their spending to avoid incurring unnecessary charges. Remember, if you don’t make payments on time both you and your teen’s credit will suffer.
Establishing Credit as Young Adults (18+)
Help your young adult to obtain their credit card if they have verifiable income. This will be a great way to encourage them to take on a greater level of financial responsibilities. However, if they still don’t have a job, you can still continue with the joint account or co-sign a new credit card.
So what are the best credit cards to consider?
Though prepaid cards aren’t technically credit cards, they are important when teaching your teens about spending expenses. Ideal for tweens, your kid will learn how to only use the money loaded on the card. When the funds run out they will have a clear insight that they can’t spend money they don’t have. By teaching them the discipline of spending money, it will be easier to manage a credit card when the time comes. The two best options of prepaid cards include FamZoo and Greenlight, both of which enable parents to manage their teen’s spending.
Parental Credit Cards
Ideal for older teens, you can make your teen an authorized user on your credit card. Nonetheless, although it’s easy to add an authorized user, the good gesture also comes with potential risks. You are responsible for all the charges your teen makes on your credit card, even if you aren’t aware of their spending expenses. Therefore, before taking the responsibility of adding your teen to your card, you need to come up with strict guidelines and rules concerning spending. Always remind them that the credit card isn’t a free pass to unnecessary spending since they will pay the money later on and with interest.
Although it’s similar to a prepaid card when it comes to protecting teens from going into debt, the secured card is meant for the 18-year-old young adults. Also, unlike the prepaid card, the secured card enables young adults to develop their own credit history. Many major banks and credit card companies offer secured credit cards based on the size of a security deposit placed on the account. For example, one of the secured cards you can get with great benefits is Capital One Secured MasterCard. With no annual fee and very few additional fees, your 18-year-old will take control of their spending and also built their credit while at it. Therefore if they don’t have a secured card, then visit getmyoffer.capitalone.com and help them apply for one.
Unlike a secured card, the student card does not require a cash deposit to enable you to acquire a card. Available from most banks and credit card companies, the income requirement is low and so is the credit limit. However, the interest rate is high compared to a standard credit card in order to offset the bank’s risk. Therefore, since your young adult will be completely responsible for all charges made, it is essential for you to prepare them financially. Keep in mind; unlike prepaid and parental cards you won’t have access to information about your kid’s card usage unless they provide it to you.
The Bottom Line
A credit card is a great tool for teaching teens and young adults about credit, credit cards, credit monitoring, budgeting, and money management. So one thing is for certain, no matter how you handle your credit card usage, ensure your kids start their financial lives on the right foot.