Should Your Kid Have A Credit Card?

Should your kid have a credit card?  That really depends on you and your kid.  Several years ago the credit card companies began targeting younger consumers starting with college students and finally going after the under 12 crowd who shop mostly on line. There’s even one company who offers an “Allowance” card that is funded by the parents. The idea of course was to get the kid familiar with a brand a capture a new customer for life.

Kiddy cards have some advantages but they also have huge drawbacks.  Your son or daughter isn’t going to get the card without you co-signing, however the bill will go to them and not you.  The advantage of a 16 year old with their own card is by the time they graduate college seven to eight years later, they will have a mature credit report.  Assuming that the card is in good standing and payments were made on time, the new graduate will have a distinct advantage getting credit when he or she needs it right out of school. The savings on interest rates could be substantial.

The downside is that most American kids do not have a clue regarding managing their credit cards.  It’s not entirely their fault as there is little in the way of personal finance taught in high school and it is almost nonexistent in lower schools.  You then have to become the educator.  You have to explain that credit cards as essentially short term loans that come with a price.  Explain that for their purposes, having a credit card is a convenience for purchasing items, not a source of income.  Better yet have them watch a basic rule of personal finance as explained by SNL and Steve Martin “Don’t Buy Stuff You Cannot Afford”.

It’s your call because you have to co-sign.  However if your son or daughter doesn’t demonstrate responsibility around the house or at school, then it is probably not a good idea to let them loose with their own credit card even if it has a maximum balance of only $200.

Of course this whole question may be moot if HB 627 is passed into law.  If this “Credit Cardholders Bill of Rights” is passed, it will prohibit the issuance of credit cards to persons under 18.