It can be tricky knowing when the right time is to set your child up with their own credit card or give them access to yours. However, obtaining a card with a small limit can give your youngster some excellent financial lessons and help set them up for the future.
There is much to consider on this topic, so here are some tips to help you handle the situation.
Reasons to Give Your Child a Credit Card
Begin by understanding the benefits of getting your child their own credit card. There are numerous reasons why you may want to do this. For example, having this type of financial product means they have a tool to use in an emergency. If they’re away from home and get stuck without transport or need to fill up the car with gas so they don’t end up on the side of the road, a credit card can be a huge help. You can rest easier knowing they have some way to pay for things to keep them out of trouble as needed.
Another key benefit is that your child can start to build their own credit and establish a credit history, which will help them later on if and when they want to borrow money to buy a car, home, business, etc. Many people don’t realize that the length of credit history actually accounts for a significant proportion of a credit score, as does evidence of paying bills on time over the years.
For many parents, the prime reason to obtain a credit card for their child is so the young person can start learning smart financial habits. Having their own card can help kids learn an intelligent mindset around credit and spending and the difference between needs and wants. They can also gain an understanding of how impulse buys are tempting versus planned purchases and the importance of reviewing purchases, understanding cash flow status, paying bills before they’re due, and setting a budget.
Risks to Consider and Mitigate
Of course, there are numerous potential risks to consider and mitigate when presenting your child with a credit card. For instance, remember that you’ll need to put in more time and effort to train your child on usage and staying safe when buying things online and elsewhere. You can mitigate this by gradually introducing financial lessons to your youngster before they get a card and ensuring comprehensive security software is installed on their computer and smartphone to keep hackers at bay when they browse and buy online with their card. Plus, ensure the product you choose has proper identity protection to help keep their ID safe.
You’ll want to spend time checking the transactions on the credit card statement and probably want to log in to the online account to ensure your child isn’t racking up huge debts in between. This task can be done quickly, though, with a fast check on a banking app on your phone or computer.
There are other potential problems you may have to deal with. For example, you might face your child running up a massive balance on their card on inappropriate items or not realizing they’re buying things when they browse items online. To mitigate this, ensure the spending limit is low on the card, to a manageable figure if you need to pay it all off, and train your child on using online stores.
Card Types to Research
Another area to examine when setting your child up with their first credit card is which type to get. Before moving to a credit product, many parents like to start with a debit card that has a set spending limit and test out how their child goes with this. From there, or if you want to go straight to a credit card, you might consider making them an additional cardholder on your own credit card so that you can retain a little more control.
There are also different credit card options such as service station or gas cards, which can be perfect limited options for new drivers, a low-limit card that might be capped at $500 or so to help users avoid overspending and secured credit cards that limit the amount that can be charged based on how much gets deposited with the card issuer first. In addition, you might consider frequent flyer or other rewards-based cards or those with a low annual fee, among others.
Once you’ve gone through the steps above, analyze the different products and choose one, perhaps in conjunction with your child, so they feel part of the process. Ask yourself if your youngster is at the right age yet to have their own card or if you should wait a little longer, and if you feel mentally and financially prepared for the undertaking.
Setting your child up with their first credit card isn’t a matter to be taken lightly, but it can help them progress financially and psychologically when approached carefully.