Teenagers and Credit Cards - A Sensible Approach for Parents

Years ago I was spending some time with a teen girl who had been placed in a foster home. One afternoon, when I was giving her a ride somewhere, I stopped for gas and handed the attendant (remember the days of gas attendants?) my credit card. The fifteen-year-old asked me what I was doing, and when my reply included the the term, "credit card", she said, "What's a credit card?" I was appropriately shocked that a girl this age didn't even know what a credit card was; because even fifteen-year-old kids aren't/weren't generally given the proverbial carte blanche when it comes to using credit cards, most kids that age at least knew what they were.

As part of teaching teens about money management in general, teaching them the proper use of credit cards is every bit as important as teaching them about the ways in which people can get in trouble using them. The fact is, credit cards are like cell phones - everyone likes to talk about how bad they are, and how we "hate" them; but they can be useful in many situations (including emergencies).

While opinions obviously vary on teaching teens about credit cards, one thing that can work well is to make sure the card your teen uses is your card, and that you have set out clear guidelines with regard to if/when it will be used. The term, "teen", covers the ages from 13 through 19; and many parents like to offer their college-aged (often "dorm-living") son or daughter use of a card for emergencies. Issuers of credit cards often offer the option of getting a card in another person's name, while the account remains in the primary card-holder's name. Whether or not you choose to get your older teen a card in his own name is, of course, personal preference. The point is that teens can often learn to manage a credit card wisely by "practicing" on a parent's card.

First, talk (and talk and talk) to your teen about managing credit in general. Kids shouldn't be in their teens before parents talk to them about managing money and credit, but if you've waited until your son or daughter is a teen the time to talk (and talk) is before handing them your credit card.

Besides talking about how credit card accounts work, how people can get in trouble with them (especially young people), and why it's important to build a good credit history; be specific about exactly when and why the card will be used. It isn't enough to just say, "for emergencies", because kids may interpret this as "for nightly pizza emergencies" or "for those times when you don't have the money for concert tickets". It's better to make sure your son or daughter knows that card is to be used "only if you run out of food" or "only if you run out of gas". Setting a spending limit and requesting your son or daughter clear higher expenses before using the card can help things go more smoothly. Agree ahead of time which kinds of expenses you will cover (if any) and which your son or daughter will cover.

Teaching about avoiding interest build-up is important, so showing teens that limiting how much they put on the card, and paying off the balance as soon as the bill arrives, stresses the importance of not letting credit card bills turn into expensive, "long-term affairs". Explaining how easy it is to run up high fees "without even trying" is one of most crucial pieces of information to share with teens.

Whether or not you will cover what is spent when the bill comes in may depend on the situation or the people involved, but make it clear ahead of time who will be paying for what; and give your son or daughter a date by which payments must be made. Share a copy of the statement even if you choose to pay for what your son or daughter charged. Suggest your son or daughter keep his/her own file for the credit card for the "usual record-keeping reasons".

Younger teens aren't usually out, running out of gas or food, the way college-aged teens often are; so their age, in some ways, builds in little need for gaining "practice" using credit cards. Allowing a younger teen to use your card for the occasional, approved, online purchase; or letting him or her have access to your account number for truly the most dire emergencies; can offer some basic awareness of how credit cards can be properly used. Again, though, introducing the use of an actual credit card account isn't just a good time to talk about credit, but shouldn't be done without having such conversation first.

Another option to consider is the prepaid debit card. Credit cards and debit cards are, of course, different; and each has its own set of advantages and disadvantages. These differences are something include in those money-management conversations. Even so (and particularly for young teens), keeping one prepaid card to use for things like online purchases or emergencies can introduce the concept of having a limit (although it offers little by way of the concept of paying a bill). Still, there is something to be said (and gained) from having practice with, and becoming comfortable with, set spending limits. So, prepaid cards can play some role in helping teens learn about money management.

One thing to keep in mind is that once teens are 18 they are able to get their own credit cards.
All the talk in the world will not be enough to keep some teens from destroying their own credit shortly after trying to establishing it, because, by virtue of their youth and confidence that nothing will go wrong, some lessons won't be learned other than the hard way. Still, don't wait until your son or daughter is 18 before being well exposed to developing good habits, the right mindset, and the proper caution (even fear) of using credit cards.

One thing that might be useful is to look online for some credit-card "horror stories" related to people who did not get in trouble because of "wild spending".  Another type of information that may be useful is that related to how financial instititutions aim to create reasons for adding fees.  Printing out a few of the most useful, quick-to-read, pages/stories for your teen, and asking him or her to look it over may offer information many parents don't think to offer.

We often hear the line, "guns don't shoot people; people do". It's similar with credit cards. Credit cards, themselves, are not evil little pieces of plastic that will ruin a life by themselves. There is no doubt that "pulling the trigger" on one's own financial well-being and credit standing is far easier to do accidentally than most teens realize. That may well be the best reason why parents should not just send the message that credit cards are evil; but instead, take the time to show teens how, when properly understood and managed, credit cards need not take over or destroy lives.