Kids & Credit Cards
You teach your children about the birds and the bees. You teach them to love. You teach them about responsibility. Is there something might have overlooked?
You probably thought I was going to say "money," but chances are you've taught them about that too. Allowances help children learn what things cost. And when you set limits on what you buy for them, they learn to save for other things.
But young people in amazing numbers don't learn about debt until they realize they have too much of it. Even parents who talk to their kids about saving or budgeting don't think to bring it up. Then those kids hit the real world. Suddenly, they're offered credit and may not know how to handle it.
Before your children leave the nest, tell them three things about credit cards: Credit bureaus keep track of whether they pay on time. If they fall behind, they might have trouble getting a mortgage or car loan — or might be charged higher interest rates than others.
College Students and Credit
College students are showered with credit-card applications, even when they have no jobs. The card issuers tell them to count the money their parents give them as "personal income." That figure can even include what you pay for their college expenses. By that measure, your child's "income" could be $20,000 or more — allowing for a lot of debt.
There's intense competition among issuers to get credit cards into young people's hands, because studies show we tend to keep the card we start with. You may be surprised to learn that your college kid can get credit cards without your permission. He might have as many as five or six cards, with debt on all of them — and you'll never know until the tearful phone call home.
Card issuers say that students have the same good payment record as most adults. But parents may be paying those bills, so their children won't start life with soiled credit histories. The issuers are effectively counting on you to pay by letting students rely on your money to qualify in the first place.
Should You and Your Child Share a Card?
Youngsters have to be 18 to get a credit card of their own. But at any age, they can have a card on your account. Call your credit-card issuer and say you want to make them "authorized users." They'll get a card with their name on it, but the bills will come to you and you're responsible.
Growing numbers of parents are giving cards to high-schoolers — gasoline credit cards for driving emergencies, and bank cards for them to shop with. The case for shared cards:
- They are training devices. Youngsters get used to having plastic in their pockets, so maybe they won't feel like showing off when they get a card wholly their own.
- There are usually no surprises. Your kids can't run up debt for months behind your back (although they could hit you with one awful bill).
- Parental supervision may save your youngster from herself — and from the lure of impulse buying.
- When you share a card, decide in advance what the child should use it for and who pays the bills. If the child runs up more debt than he can cover, take back the card and put him on a repayment plan. Don't forgive the debt. Visa and MasterCard won't when he moves into the real world. Paying you is practice too.
What Your Child Needs to Know
Before your children leave the nest, tell them three things about credit cards:
Credit bureaus keep track of whether they pay on time. If they fall behind, they might have trouble getting a mortgage or car loan — or might be charged higher interest rates than others.
A card might start with a six-month interest rate of 9 percent. But look at the "annual percentage rate" (APR), because that's what a user really pays. Cards for first-timers tend to charge 24 to 27 percent. But young people who establish good credit histories should shop for one that charges 14 percent or less.
One card is plenty. A child spending more than they can repay each month is headed for credit hell.