How do you know if your teen is ready to carry a credit card? It’s never an easy decision, says Beverly Harzog, credit card expert and consumer finance analyst for U.S. News and World Report, L.P. Some kids may be ready in their early teens, while others in their 20s still don’t have the maturity and knowledge to responsibly handle credit, she says.
But there are steps that parents can take to make the transition to credit easier. Every teen should get a lesson in compound interest, to understand why it’s important to stay within a budget and pay down debts quickly. “You also need to teach them about the grace period,” says Harzog. She suggests kids as young as 10 get involved every month when you pay your bills so they understand the value of money, why it’s important to save, and how credit can help you — or harm your financial future if you don’t use it correctly.
Think it’s time to hand over a credit card to your son or daughter? Take this quiz to help make the decision.
- When your teen goes to the movies, she:
a. Spends her own money — even for popcorn!
b. Ask for money but promises to pay you back after she gets her paycheck or allowance.
c. Puts a hand out for a $20. (And maybe two $20s because, hey, that concession candy is expensive!)
- It’s 11 p.m. and curfew time is upon you. Your teen is:
a. Sitting in the kitchen telling you about his night.
b. Not home yet but has texted to explain why he’s running late.
c. Still out with friends.
- Your daughter worked all summer at a fast-food restaurant. Her savings account contains:
a. More than 50% of what she earned.
b. Something! She did purchase a few key items but remembered to save, too.
c. No savings, but she made a lot of fun memories and got some really great new kicks.
- Your teen needs a new pair of sneakers. He:
a. Shops around and researches sales online, chooses a pair that’s good-looking and functional, and takes an extra 10% off with a coupon code.
b. Goes right for the coolest pair in the trendiest shop but offers to split the cost with you.
c. Picks a pair that gives you sticker shock and expects you to pay for it completely.
- When it comes to cell phone usage, your teen…
a. Is careful to stay within your family’s minute and data allotment each month.
b. Is pretty good at staying within her limits most months.
c. Has lost at least one phone and has trouble staying within your family’s minutes and data limits.
Mostly As: Your teen is on a solid path to becoming a responsible credit user. He or she understands what it means to use a credit card, has enough restraint to avoid frivolous purchases, and can be trusted to have one. Consider making your teen an authorized user on your credit card.
Mostly Bs: While your son or daughter isn’t the best at money management, he or she understands the value of a dollar and just needs a little help when it comes to saving. That said, you may want to hold back on giving access to a credit card on a daily basis. Consider providing a credit card when you know your teen may need it — if he or she is going somewhere without you, on vacation, or during school hours for lunch.
Mostly Cs: Your teen may not be ready for the responsibility of using credit. Hold off for six months or until you see him or her behaving more prudently when it comes to spending money and following rules. If you absolutely must give your teen a credit card, look for a secured card, says Harzog, which is what she calls a “credit card on training wheels.” You or your teen will deposit as little as $300. The credit line is equal to the deposit, which is refunded when you close the account or if you are upgraded to an unsecured card.