Give your teenager a credit card? Some financial experts say yes
Parents should only consider switching to a credit card after the teen has demonstrated responsible handling of cash accounts, said Paul Golden, spokesperson for the National Endowment for Financial Education and father of two teenage boys. “I believe in using a stepped process,” he said.
Here are some questions and answers about teen credit cards:
How do I know if my teen is ready for a credit card?
If your child asks questions about credit or seems curious when you’re using a credit card, now’s a good time to start a conversation, Golden said. Sara Rathner, a credit card expert at financial website NerdWallet, said parents should consider how teenagers behave when they receive money. Can they keep track of it? Are they spending all of a sudden? Losing money or making impulse purchases may suggest that it is better to wait a while before introducing credit. “You know your teenager better than anyone,” she said.
Can I set a lower spending limit on a credit card I give to my teen?
May be. Most people don’t realize they can lower spending limits on their credit cards just by asking their bank, said Ms. Fisher, the financial planner.
Some banks allow you to set very low limits for cards issued to authorized users. That way, you don’t have to expose your entire $10,000 line of credit to a teenager who might be excited about, say, in-app purchases while playing their favorite online video game. American Express, for its part, allows borrowers to set limits as low as $200 for cards issued to authorized users.
When should young adults make the switch to their own credit card accounts?
Parents should discuss with their child in advance when the financial apron strings will be cut, said Paul Siegfried, senior vice president and head of credit card operations at credit bureau TransUnion. “Have an exit strategy,” he said. Each family will have their own approach, he said, but a reasonable timeframe may be for “authorized user” status to be revoked three to six months after the child graduates from college or gets a job at full-time.