Sunday, September 18, 2011

Should You Give Your Child a Credit Card?

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Money is a sensitive, albeit important topic of conversation in households. Before we know it our kids are heading to college, and we realize we hadn’t discussed the financial responsibility that comes with being an adult. A large part of turning 18 is the availability of credit cards. So when do we introduce our kids to the scarily enticing world of credit? Should we get them credit cards before they ship out? Some experts say yes; many parents say no.

Early Use of Credit Cards Equals Later Fiscal Responsibility

Surprisingly, many financial experts tout getting your teenager a credit card. Most agree that 16 years old is an appropriate age. Reasons why experts believe your child should learn how to use a credit card follow:

• Credit cards help teens learn to be financially accountable while being monitored closely by parents
• An early credit card allows you to observe and train your teenager on credit card use
• If you co-sign on a card, you have more control over how it’s used
• Having a credit card is a good way for your child to learn how to build good credit
• Credit card statements give you and your teen a record of how money is being spent

Too Young to Charge?

While the experts say it’s to your teen’s advantage to get a credit card, many people out there (especially parents) disagree. Indeed, the thought of a teenager having free reign with a credit card is a frightening one. Other concerns about giving your teenager a credit card are outlined below:

• Credit cards endorse borrowing rather than saving
• Teens are not mature enough to handle credit cards
• Young adults should not be incurring debt at a young age, and it can reflect badly on the parents’ credit as well
• Credit cards make it easy for teens to spend frivolously

Work Together

Regardless of where you stand on the issue, here are some financial tips to help you guide your teens into the world of finance:

1. Communicate! Talk to your kids about money and credit early, even if you decide not to get them a credit card.
2. Whatever you decide, experts agree – don’t get your teens prepaid debit cards. They are riddled with hidden fees.
3. If you have bad credit, think twice before getting your kid a credit card. It’s likely you will not pass on the wisest advice about using it.
4. Let your child practice making payments to you. Buy them a larger-ticket item they want and have them pay you back, with interest.
5. Consider giving your child a charge card rather than a credit card. Charge cards require you to pay the full balance each month.

It’s better to inform your teens now about credit card usage and how to be financially responsible than to have them deep in credit debt in the future, which can affect them the rest of their lives. Good financial lessons last a lifetime.

Tony Patterson is a personal finance consultant, and content contributor for companies offering consumers credit cards for bad credit situations they may have temporarily experienced.

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