In the last column I indicated that I was surprised to have read that 1 in 5 young people ages 13 to 17 had a credit card. They would have that card because they are an authorized user on a parent’s account, since they are not 18 and legally able to enter into contracts, and they would receive an additional card on that account.
The three explanations that I have heard for doing that are: so they can have that card for emergencies; it is a way to start teaching them about the responsible use of credit and credit cards; and it will start building their credit early. As for the last explanation, I have indicated that is true, if the card company separately reports the child’s usage.
I promised that I would do some interviewing and reading, and discuss it more in this column.
First, I want to make it clear that we are not talking about a debit card/ATM card tied into a child’s saving or checking account, which would have to be a joint account with a parent or other adult until the child turns 18. A number of parents I spoke with said that their child did have a debit card. I believe this could solve the true emergency concern in most cases, and be an excellent teaching tool about managing THEIR MONEY, if handled properly. First, you need to make sure that the account does not have over-limit protection, so there will never be a purchase cleared if there is not enough money in the account, and, therefore, no expensive over-limit fees and interest charged on any “borrowed” money.
Also, I always recommend carrying a ledger to record any purchase with a debit card, so that at all times you will know the balance in the account, and it will keep you a little more “in touch” with your money, but not as well as if you use cash.
I would hope that the money in the account would be the child’s money, from whatever sources — work, gifts, an allowance, or money placed in the account by the parents for a special reason, like they are going on a vacation with another family. If it’s the child’s money, they will usually be more careful when spending it, and it’s a great opportunity to talk with them about a realistic weekly or monthly spending budget, and then to work with them periodically on how they are doing.
Second, when it comes to the kind of an emergency that young people 13 to 17 could have that they would need a credit card for, I couldn’t find an adult or college or high school student who could really think of one. It occurred to me that some, but not 1 in 5, could be away at school, traveling, or at camp, but at that age, aren’t they with adults? If they have a car that breaks down, aren’t they just a cellphone call away from some adult relative or friend? They do all seem to have cellphones, and the ones who don’t have a cell phone might not be the ones that you would trust with a credit card. Maybe we are just not creative enough, especially those of us who were able to get to adulthood without either a cellphone or a credit or debit card — just a checking account and cash. And even I know that with that call the adult could pay for something with their credit card, PayPal, or several other ways.
It makes me wonder if that emergency reason is just about convenience for some parents, and then I wonder if they have ever even talked about what constitutes an emergency that they could use the card for.
Third, if the credit card is to teach them good money habits, and to handle credit responsibly, how do you do that? Do they have to pay the amount of all of their charges to the parents when the bill is due? Are there things they CANNOT charge? Are there meaningful discussions about wants, wishes, luxuries and conveniences, about weekly or monthly budgets, and about the dangers of impulse buying online and otherwise? Are there discussions about using cash to spend more wisely, and about being a smart and comparative shopper, getting the best value for your money? If a credit card is an effective tool to teach those things for any given parent and child, even at 13 to 17, I am all for it. Otherwise ...
I want to close with a few comments from parents on the subject.
1. We have three kids — two boys, ages 13 and 15, and an almost 17-year-old daughter. None of them have credit cards, nor do we have any intention of getting them one anytime soon. We are going next week to see about changing my daughter’s savings account into a checking account so she can have a debit card, as she now has a part-time job. We’ve tried to instill the idea early on that if you can’t pay cash you can’t afford it (other than a car, a house, etc.). When she goes to college I’m not sure I would give her one either, as in this day and age, she can just call me and I could pay for something via my phone (PayPal, Venmo, pay online, etc.).
2. I added my daughter as an authorized user on two of my credit cards after detailed discussions, and she understands that she is responsible for the purchases and that they must be paid for on time. Although she rarely charges anything, she does pay it on time. Also, both my children have bank accounts with debit cards.
3. We have cash on hand and a list on the calendar of what they owe us. They both have phones, and it would be so incredibly rare that they couldn't get me or my husband, or my parents, or any of the neighbors in an emergency that they could get a credit card number over the phone. I see no reason for them to have a card at any point until they are adults and have the responsibility on their own!
I hope these help.
John Ninfo is a retired bankruptcy judge and the founder of the National CARE Financial Literacy Program. Find his previous weekly columns at http://www.mpnnow.com/search?text=Ninfo or at http://www.monroecopost.com/search?text=Ninfo.