How to teach your
children about credit cards -- before it's too late
Credit cards for
kids. People either latch onto the idea or loathe it.
"It's appalling," says Ken
McEldowney, executive director of Consumer Action, an advocacy and educational
organization. "It's like saying, 'Hey, let's get you started going into
debt early.' "
Wendy Weinberg, executive
director of the National Association of Consumer Agency
Administrators, agrees. "Consumer groups have generally been
against marketing to college kids; the high school students is one step
is a powerful tool
But another faction sees credit cards as a
powerful tool, and thinks children should gain experience using them
before they turn 18 and can obtain one without parental consent.
loans is an important skill," says Sharon Rich, financial planner and
psychologist with Womoney in Belmont, Mass. "I don't think it's a
bad idea for a child to have some responsibility for that."
The key to success is
education. Parents must be vigilant and involved with teaching their
youngsters financial basics.
"I think this product is right
in certain families," says spokeswoman Diana Don of Capital One's "High
School Credit Card," a co-signed MasterCard for 16- to 18-year-olds.
"It may not be right for families who don't want to teach these skills.
This is very important to understand."
Experts say parents should take several gradual
financial steps before giving a kid a credit card.
- First, see to it that the child has a checking account.
"Children first need to learn the basic skills of writing a check and
tracking money," says Rich.
- After they have shown they
can balance a checkbook, let them use a debit card, which looks and
acts like a credit card but is tied to the checking account.
- When they have mastered
those basics, apply for an extra credit card under your own account at
a retail store or bank.
- Tell them how the card works
-- starting with the connection between charging one month and paying
the next. Emphasize that it's not free money unless the balance is paid
in full before the grace period expires. Explain interest and how it
compounds if a debt piles up. Look at the fine print and review other
key terms such as late fees. Stress the importance of keeping the card
safe, and what to do if it's stolen or lost.
- Set limits and monitor the child's usage. "See what
happens when you tell them they can spend $100 on a wardrobe," says
Rich. "Build up their level of responsibility."
- When you feel they are ready
for a card in their name, encourage them to shop around for low rates
- Emphasize the importance of
a good credit history and how a bad one can thwart their efforts to buy
their first car or apartment. Show them how to get a copy of their
- Give the child
responsibility for paying all or part of their balance from an
allowance or job. "If the child isn't earning the money, a lot of the
reality is lost," says consumer advocate Weinberg. "I don't think most
people appreciate the value of money until they are sitting at a desk
pulling in a paycheck."
- Posted: May 8, 2000 --
Updated: March 21, 2007