INTRODUCTION
“Where’s my money? Where’s my money? Where’s my money?” asks (demands?) my eight-year-old nephew of his beleaguered father when the week is through, and chores are done (or not done as the case may be). As with many of us, getting an allowance from our parents was our first introduction to the fantastical world of finance.
Sometimes we got the money, other times we got a spending limit for a toy at the store. The idea was the same, to teach us at a young age some sort of fiscal responsibility. Being part of the electronic age, it seems paper money is going by the wayside, being replaced more and more by plastic, crypto, and now apps on smartphones.
As technology continues to expand and children are having it thrust upon them, the question that now begs to be asked, is allowing children access to financial instruments (credit/debit cards or financial apps) a good idea? Let’s see.
WHY SHOULD CHILDREN HAVE CREDIT CARDS?
An immediately disclaimer must be made abundantly clear at this point. Under no circumstance is this author or article implying or stating outright that children should be given access to unlimited funds on a credit or debit card or in a smartphone app.
This process should be a learning opportunity in money and responsibility. It must come with a set of ground rules that must be followed by both parent and child. With that being said, why should children have a credit card?
Builds Credit
The primary reason most people agree upon as to why get a child a credit card is that it helps build the child’s credit score. And as most of us know, credit scores (approximately 15%) are partly based on the length of time a person has been using credit. The earlier the start, the longer the credit history, the better the score – in theory.
Learn to Use Credit
Another top-notch reason for providing children with access to credit cards is that it instills in them the how(s), why(s), and when(s) to use credit. It provides them a roadmap of sorts with time being spent in places such as Proper-Borrowing-Habits-ville, Budgeting town, Learn-Interest-Rates-burg, and the little hamlet of Paying-It-Back.
ADDITIONAL BENEFITS
Instilling Healthy Financial Habits
As well as learning how to use a credit card, as described above, this process can be a great jumping off point to instill in your child(ren) healthy financial habits that go beyond responsible spending. This is a great opportunity to introduce the young credit card holder to saving and investing. All things that help prepare as the child eventually transitions from minor to an adult that needs to provide for a family and fund a retirement.
A Soft Safety Net
Another positive benefit for starting your child off with a credit/debit card while under your care is to provide a nice soft financial safety net for them. That is, since you are able to monitor their spending habits you may have the opportunity to intervene before a major financial blunder occurs. And if such a blunder does occur, again you are there to help them navigate through those turbulent financial waters and make it safely to a calm harbor.
WHAT ISSUES CAN ARISE
Reckless Spending
While the goal is to teach and instill health financial habits in your children, some minors may still be unable to avoid the historical pitfall of credit cards – reckless or overspending. This is a very easy trap to fall into for adults let alone children. Parents must be vigilant not only at the end of the month when the bill arrives but also during the month via monitoring the child’s spending habits.
Lost or Stolen Cards
It has happened to the best of us and most certainly will happen to the child with a credit/debit card. Said card will get lost! Before that happens putting a plan in place as what to do if and when a card comes up missing is a must. That plan should contain a folder of some sort that contains all appropriate contact numbers for the credit card companies. It is always best to be over prepared for a lost or stolen card scenario.
HOW TO MAKE IT WORK
Outline Rules
To make this enterprise, like any other endeavor, work there must be some basic groundwork rules put in place. A key part of having all parties agree to and work within said rules, is to be sure all parties have a say in what the rules shall be. Writing down these rules in easy to understand, concise language is a huge must.
Outline the rules for spending, what is and is not allowed to be purchased, repayment options, online usage, and weekly spending amounts are just some examples.
Spending Limits
As stated above, spending limits should be a vital part of the rules. You should decide on the total amount of spending allowed for the month should be as well as breaking that amount down into weekly and daily spending. This would go a long way to teaching the children about spending habits, delayed gratification, and money management.
Paying the Bill
Probably the most important lesson in this process is who and how the bill at the end of the month is to be paid. Will the child be responsible for the entire amount? Will it be taken out of an allowance? Will they be able to do additional chores to earn additional income? Will the parents pay a percentage of the bill, matching the children’s contribution? Again, this is a critical learning stage for the child and can be a great opportunity to lay solid financial foundations for the future.
HOW TO GET CREDIT CARDS FOR CHILDREN
So now you have reached the point where you decide is getting my child(ren) a credit card a viable option. The first step in deciding to move forward is deciding if your child(ren) is mature enough to handle the responsibility. Let’s say yes. Now what?
Add to Adult’s Account
Some credit cards can be open in the child’s name only assuming they meet the requirements (ie. minimum age) of the issuing company. Another option is to add them to the adult’s account in which they would be issued a separate card. Keep in mind that it is important to make sure both parties understand the policies and what is expected of them with regards to the ownership of the credit card.
Research Child Specific Cards
In today’s technological online focus, many companies have seen an untapped market (ie. children) and have develop a slew of credit/debit card options designed specifically for the younger crowd. Be sure to spend some time sifting through the various options and find one that matches what you want to accomplish with regards to your child’s financial education.
IN CONCLUSION
So, should your child or children in general have access to credit/debit cards? That is a serious conversation for each family to handle in their own homes. There are many pros and cons and they should be discussed with all seriousness and decorum. It is a big undertaking and an even bigger responsibility. A responsibility that both parent and child alike must be up to the task.
The bottom line is that allowing your child access to credit is a wonderful opportunity for them to learn responsible financial management, but it can also be a powerful temptation to go down the reckless spending path. A decision like this should not be made lightly as it can impact the future of both parent and child.