You have probably heard about the video went viral on YouTube with a kid who spent $400 on his dad’s credit card to buy an X-Box One last 2016.
Does it sound like one of your worst nightmares?
The idea of giving your kids a credit card may be scary or a big no-no. However, like many things, it has its own pros and cons. As a parent, you know you have to provide for your kids including their needs to be financially literate. You might as well know how adept your kids are at their finances at this point. If they aren’t ready, this is where your role as an authority figure would come in handy.
So how should you approach this?
“Are my kids at the right age to use a credit card?”
Banks can’t grant your kid a credit card if they are still a minor. Yet, if you are an authorized credit card holder, you can give them a supplementary card in line with the bank qualifications and requirements.
The best time to add them to your credit card account is when they’re college-bound. However, every bank is different so it’s also wiser to check with your bank to see if your kids are at the right age to be an authorized user.
Sit down with your kids and discuss money matters
As you wait for them to reach the right age, teach them all the necessaries about personal finance such as the importance of money, good spending habits, and budgeting. A T. Rowe Price study suggests that kids must learn about money management so they can be a responsible credit card holder. The earlier they start racking up a great credit history, the better their chances are at getting a loan approval from banks and independent lenders in the future.
Consider getting a supplementary card
It is a good thing that a principal credit card holder must be 21 years old and above. So, your kids do not really have any other option but to say yes to a supplementary card. The bank will have you authorize them to use your card. This can be an advantage because you can keep an eye on their spending habits and avoid the pitfalls of incurring unwanted transactions.
If your authorized card users go delinquent, you can easily remove them from your account and the bank should remove this bad record from your credit report as well. Therefore, a supplementary card is one of the best ways to train your kids about every nook and cranny of money management.
Once they reach the legal age to be a principal credit card holder, you can help them build their own credit standing by enrolling them in a secured credit card account. You will have to deposit a certain amount of money in the bank and the user may only use 80% to 90% of the deposited amount.
Check your kids’ emotional maturity
Your kids are excited and the bank agrees they can grant them a supplementary card, but how sure are you that they are at the right level of emotional maturity?
While you may have already taught them about personal finance, you should also consider their emotional maturity when it comes to the world of the “Buy Now, Pay Later” scheme. It’s easy to use a credit card but resisting those impulses to buy something they don’t actually need is very challenging.
Your kids must know where the money they spend is coming from. They might have multiple sources of funds like their school allowance and a part-time job but it is always important to make them understand the value of money.
Once you feel like your kids are absolutely ready for a credit card, you should give them one. Feel free to look around for the right card for them whether it’s for gas, rebate, air miles, or rewards.