Some children are wise beyond their years when it comes to understanding credit cards and understanding credit card debt. Others may need a little more maturing before you start helping them build credit of their own. Either way, there’s no easy answer to the question “When I should start teach my kids about credit?” Only you can tell, but here are a few ways to help you figure out the best time for your child to start building credit and how to get them headed in the right direction.
Watch for Tell-Tale Signs
Your child’s credit education should start when you think they’re ready, but there are different life stages to explain credit to them in different ways. And financial literacy for teens is very different than it is for younger children. Maybe your teenager is showing more interest in saving by hanging onto their allowance instead of spending it. Are they open and honest with how they spend their money? Does your child make curfew and meet deadlines? These are all questions to ask yourself when you’re deciding how to talk to kids about credit cards.
According to a 2018 survey from the nonprofit Council for Economic Education, only 1/3 of U.S. states require students to graduate high school having taken a personal finance class. So, you might have some gaps to fill when it comes to teens and teaching credit to high school students. To assess what they know well, look at their purchase decisions and basic money management skills, like budgeting, saving and spending wisely. And if they show a genuine interest in building credit and start asking questions, they might already have some credit knowledge and be ready for more responsibility.
Give Them the Okay
So, you’ve taken the time to explain credit card basics for students and you’re confident your child understands the concept. Maybe it’s time to consider trying the real thing.
Getting a credit card for kids is something you should consider carefully, but it can be helpful to their financial future, depending on their age. According to Credit Donkey®, 80% of young adults aged 18-19 years old do not have a credit score at all. If your child falls into this category, they could hit some speedbumps when it comes time to rent an apartment, open utility accounts—even getting a new credit card in their own name in the future.
When Student Monitor conducted a study among college students, they were asked about which card payment features they consider to be most important. The study found that 62% were most interested in “being able to build a credit history.”
So, how can you get a get a credit card for your child? If you want to help your teen begin building their own credit history, you can either get them a card of their own (with you as a co-signer) or you can add a child to your credit card account as an authorized user.
Adding your kid as an authorized user is a great place to start, but pay attention to age limits set by credit card issuers. While some companies might not set one, you still want to be cautious. After all, it’s your credit on the line. Prior to adding your child as an authorized user, you also might want to pull your child’s free credit report from one, or all, of the three credit bureaus: Experian®, TransUnion® or Equifax®. This will allow you to check for any signs of fraud or identity theft before you get started.
As an authorized user and first-time credit card holder, your child will be linked to your existing credit card account and will have permission to make purchases. The authorized user gets their own card, but you’ll be responsible for payments.
By adding an authorized user, you can also earn more rewards, and it might even make it easier to manage your finances with everything on one account. It’s also free with some companies and all you have to do is sign up online.
Setting Up for Success
Whether you decide to get them their own card or opt to add them as an authorized user, walk your kids through how and when to use their new card based on your own practical money skills. Are they allowed to use it only in emergencies? Should they ask for permission before using it? See if your card issuer will let you set spending limits on authorized users to help you.
Ultimately, it pays to teach your kids how to avoid irresponsible teen credit card debt. Explain that starting to build credit at an earlier age could make future financing easier once they graduate college. They’ll have a longer credit history than some of their contemporaries, which could give them access to the larger lines of credit needed to make big purchases in the future.
No matter when you decide is the right time for your child to start building their credit, you can give them a head start. Help them get a better grasp on keeping healthy credit and educate them on how to put it to use once they’re older.