Giving Your Child a Credit Card Before a Bank Account
I obtained my first credit card right before i began my freshman year at college. Someone advised my mother to let me get one in case of emergencies. It was also a well-known way to start building credit.
She herself did not have a credit card, and our means at the time were so little that she was not sure how much she could help me if I needed it. My mom thought about it for a while and knowing my personality, and the fact that I would have access to money in case of an emergency, swayed her decision that I should get one. She had a stern talking with me about what is considered an emergency, the negative impact it can have on my life and told me to make wise decisions. We went and apply for a secured credit card. I put down five hundred dollars giving me a spending limit of five-hundred-dollar at an 18.99% fixed rate. I already had a summer job lined up before I graduated high school to help with the cost of books for that semester and I was already pretty responsible with the way I managed my bank account. I assured my mom that I would be careful.
Between my work study program and my part time job, I did not have much money so I rarely used the credit card. I was responsible with my card and a few months into my freshman year of college my money was returned and my spending limit was raised to one thousand dollars. By the time I was a senior my limit had been raised to five thousand dollars.
When I got the statement showing my limit had risen to five thousand dollars, I called the credit card company immediately and told them not to raise my limit any further.
I was not alone
Speaking with other students throughout my college years I realized that I was not the only one whose parents had gotten them a credit card prior to leaving for college. It almost seemed like it was a rite of passage. However, it did seem that some parents hadn’t given the same speech that my mom gave me. I mean it when I say that my mom put the fear of God in me about managing a credit card. That along with not wanting to add additional financial burden to my family kept me from being careless with the credit card.
I started to watch some of my peers mindlessly shop and attending various events, concerts and long weekend getaways. I remember thinking “wow their parents must be well off for them to be able to use the credit card so freely.” I soon came to realize that many of their parents did not know what was going on until they received the credit card statements. Some of my peers were cut off immediately and their cards were cut up, while others were put on a spending limit or had to get a job to pay back their parents.
Does your child need a credit card?
Money equals freedom and for a young adult who has never had their own spending money to buy whatever they want without having to ask mom and dad, it is not hard to see that some may get overzealous with this new found spending power.
The common reasons why parents obtain their child a credit card are:
Credit history - The thought is by helping our child to build credit from an early age we are helping to set them up for future financial opportunities, such as lower interest rates on various loans. I cannot say this thought process is wrong. I mean what parent doesn’t want to provide an upper hand for their child but is that the only way. We can also teach our kids how to save, invest and build up an emergency fund so that when they need something they can pay cash for it.
Safety – Many believe credit cards offer more consumer protection against fraud and purchase protection opposed to a debit card.
Emergencies – I remember back when I was younger before cell phones, my mom would never let me leave the house without quarters in my purse and that was because she wanted me to be able to have money for a pay phone in case of an emergency. This is no different. As a parent, like my mom, you want to feel confident that your child has enough money to cover whatever expense arise such as gas or food when they are not close to home.
Does your child have a bank account?
Before we give our children a credit card, I feel it is vital that we teach them how to have a healthy relationship with money. Credit cards provide an ease to purchase without the sting of your money decreasing. This can be detrimental to one’s financial future if they are not responsible with them and get themselves into a situation where the balance is something they cannot manage.
Open a bank account with your child, have them get a job if they are of age and have their money deposited into their bank account. If they are too young to have an official job have them work for money around the house and yard and then have them deposit it into their bank account.
Whenever they want something have them use their own money to make the purchase. If they don’t have enough then help them develop a plan to save up for it. By doing this they will develop an understanding of how their money is impacted when they want to use it. They will also get an understanding of the limits to their purchasing power and how to live within their means.
Educating you child about the difference between needs and wants is something that will impact the rest of their life. Review their purchases with them and discuss their shopping patterns, such as impulse shopping and the benefit of delayed gratification. Most importantly explain the significance of saving for future purchases, such as a car and spontaneous trips or emergencies.
Obviously, it is a parent’s choice whether or not to give their child a credit card before they turn 18 and I am not trying to sway you one way, but to give you some food for thought if you are at this point in life with your children.
If you decide to give your child a credit card, make sure that you establish rules such as who will pay for the purchases made. In my case my mom stated that I was responsible for whatever I put on that card. If you take this approach, make sure they have a clear picture of what paying a credit card means. If they are not paying the full balance then they need to have a good understanding of how the interest rate will affect that.
Boundaries should be clearly outlined as well as the consequences if they are not adhered to, and be honest with yourself as a parent because you know your child best. Do you think your child will stay within the limitations provided? Are they responsible enough to own a credit card and not max it out on stuff that is not essential? Really think about the pros and the cons because a credit card requires a great deal of responsibility and whether your child is really ready for that.
My final thought
To be clear this is my opinion and some may not agree with me, but I do not believe a child should have a credit card especially before they are starting to manage their own money. Whether that be cash on hand or through a bank account. I myself got rid of my credit card and I previously wrote a blog on Breaking up with my Credit Card that explains why.
The fact is debt can be crippling and it is not something that we need to rush our kids into. While I understand all the reasons we have for getting our kids a credit card. The benefit does not out way the consequences if they get in trouble with it.
When dealing with credit history the payment history is more important than the length of time you have had credit. Creditors want to know if you are going to pay them back and on time. When it comes to safety and liability protection on a credit card vs debit card you have to do your research on the financial institutions that you want to use and then weigh the pros and the cons. Again, you will have to factor in your kid’s personality and experience and history with money.
As for emergencies, isn’t that what an emergency fund is for. If we teach our children to save and begin to build their saving accounts from day one, you will be amazed at how much money they will save up. Down the road it could be enough to put a down payment on a house, pay cash for a car and eliminating the risk of them building up debt or be worrying about a credit score when they are headed off to college or their first job.
If you strongly believe that your child should have a credit card then you should not do so without teaching or making sure your child have the basic understanding of credit limits, interest rates, credit score and credit reports. They need to understand how their actions can affect their credit and financial future even if you are the one footing the bill and money is not an issue.
I want to know what is your view on giving credit cards to kids before they even have a bank account? What was your experience with giving your child a credit card? Leave a comment.
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