Should Your Teenager Own A Credit Card?

23
July

On the surface, credit cards make a lot of sense. If you have a steady job and have the capacity to repay the money you borrowed, credit cards can be a terrific tool. But what about teenagers? Should your teenager be allowed to own a credit card? This is a difficult subject, and recent events have made it even more difficult.

Do you remember the fall of 2008? If you follow the stock market or care about the economy, you most likely remember that time period. This is when major U.S. banks failed and the stock market shredded years of gains in a matter of weeks. There are many events that led to this, one of them being sub-prime lending. To put it simply, lenders were making loans to people who couldn’t afford a home. These borrowers were confident that real estate would never go down. They were wrong. Real estate crashed and their homes were worth less than what they paid for them. This is known as being ‘under water’ on a loan. Many of these people reacted by staying in their homes, even though they were not paid for. This is important because it taught younger people that it’s not only okay to run-up large debts, but not to repay them.

Most teenagers will spend recklessly. They will dream of big money coming their way in the future. This leads to spending money without worrying about consequences. All this might seem like it’s a bad idea to give your teenager a credit card, but as with most things, it’s more of a gray area than black and white.

A credit card can be a great thing for a teenager because it will teach financial responsibility. Of course, credit cards will have a limit. That limit can only increase if the credit card holder is able to repay the loans on time. However, these limits still start considerably high – in the thousands. This means that you need to take action as a parent.

Call all the credit card companies and see if one will allow you to get alerts on your teenager’s transactions. This will definitely be possible if you’re the primary name on the account. This will also greatly increase the odds that your teenager will not overspend. Some will argue that this approach defeats the purpose of the lesson. In other words, this doesn’t show if the teenager will be responsible on their own or not. But being the primary name on the account is still the better option. You were there when he or she was beginning to ride a tricycle. It’s okay to finesse them in the right direction with credit cards as well. You can also set a simple rule that if your teenager is unable to repay what they borrowed during a payment period, they will lose the card for one month. There are many ways to go about this, and it will depend on your parenting approach, as well as the personality of your teenager. But it is a good idea to have a few rules set in place.

It’s also important that your teenager knows the importance of credit. While the sub-prime mortgage meltdown displayed poor habits, something good also came out of it. Credit is now very tight. While this is bad for the overall economy, it’s good for teenagers and young adults. It will help keep them out of trouble. Now it will be very difficult to get a loan for a home. The only chance your teenager will have is to build up good credit. And a credit card is a good way to do that. Another minor tip is to let them know to avoid the tempting ads online for checking their credit score. Many people don’t know this, but when you check your credit score, your credit score will decrease. Another important factor for you to know – but not for your teenager to know – is that most loans have a 15-day grace period. For example, if the due date is 5/15, your credit score will not be affected unless you fail to pay after 5/30.

Hopefully, the above information will help you make the right decisions and your teenager will grow up to be a financially responsible adult.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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