When’s a good age to let a child have a credit card and how do you teach them to use it properly?
There’s really no cut and dry answer to these questions. I know friends who’ve had credit cards as soon as they turned 18 and only pay the minimum balance, while I also know people older than myself who choose not to have credit cards because they don’t feel comfortable using them.
Credit cards are a good way to begin building your credit score, but they can come with a whole bucketful of debt if used inappropriately. In the United States, there’s a larger debate about financial literacy and at what age children should know about certain aspects of money.
So how do you teach your child about using credit? There’s no specific age when the child is ready to start learning this, but there are steps parents can take to prepare them to becoming financially independent, said Ruth Kewin, president and CEO of four quarter$, a business that focuses on teaching kids about personal finance.
Teach the concepts and the lingo
The child should first learn about the language of money and how it works. “Take a look at some of the websites that are out there, Visa, Mastercard and so on, and have a look at what language they use,” Kewin says. “The reason I always start with the language is because that’s where you start getting the concepts that you need to know before you get that piece of plastic. You need to know what interest is, you need to know that there is a grace period for when the money is not owed and you also need to know that you’re borrowing money.”
Gain experience with money
There’s no better way to learn something then to go through the motions and experience handling it yourself. It’s important for children to experience having money, spending it, but also realizing that it needs to be worked for. It’s best if they learn early on about paying yourself first, spending wisely, saving regularly and giving intentionally, Kewin adds.
In many cases, the child will encounter this when they get their first job. For the first few months of receiving a debit card it’s important to sit down with the child and look over their bank statement, Kewin says. This way they can see where their money is going, whether what they’re buying is a need or a want, and what their spending habits are like, such as whether they’re more likely to shop when they’re upset.
Learn about using borrowed money
“There’s a real disconnect and misinformation that young people have. They treat credit cards like they treat a debit card,” Kewin says. “One of the things that I talk with them about is when you look at a debit card that’s your money.
“As soon as you whip out a credit card, you’re now using someone else’s money and you’re paying for it.”
Remind the teenager to reserve the credit card for needs rather than wants, hopefully they’ve learned that before using the card, and the importance of paying their balance on time. You can show the child what happens when they don’t pay the balance by using online interest calculators.
“As a parent, I believe it’s our responsibility to help our children learn and get on in society today and one of the ways that they learn about good credit and bad credit is having the experience,” she says.
Read my next blogpost for the different credit card options for a new user and the pros and cons for each.