Giving a teenager a credit card may seem a risky proposition. But finance experts say it can be a helpful educational step, with proper limits.
Children under 18 can’t apply for credit in their own name, but they can piggyback on their parents’ cards—whether by informally borrowing the cards or by having parents officially add them as “authorized” users, with their own cards.
As The New York Times reports, recent findings suggest that some parents embrace the idea of credit cards for their children. In a report that T. Rowe Price published this year, 17% of parents of children ages 8 to 17 said their offspring had credit cards.
“I view a credit card as a tool,” says Jack E. Kosakowski, president and chief executive of Junior Achievement USA, a nonprofit group that promotes financial literacy and entrepreneurship among young people. “If parents use it as a teaching opportunity, it’s a great thing.”
Understanding the difference between spending with a debit card, which is linked to a bank account, and borrowing on a credit card is an important lesson for teenagers, said Jeanne Fisher, a certified financial planner in Bowling Green. But it’s one best learned, she emphasized, with close supervision by a responsible adult.
Co-signing for a card for older teenagers can help build their credit file because card companies report their payment history to the major credit bureaus. So eventually when they are on their own, they may qualify for more favorable interest rates on car loans and other credit.
But beware: As a co-signer, you are legally responsible for the account, and your own credit may suffer if your teenager overspends or doesn’t pay the card bill on time. Read the full story.
