Should kids have credit cards? That depends on the kids and the ability of the parents to educate them. Years ago credit card issuers began targeting college juniors and seniors offering instant approval to a group about to enter the workforce. Now there cards aimed at the high school crowd and another prepaid allowance card aimed at kids 12 and under! Whats going on? The banks want a piece of the $1.2 billion dollars that kids under 18 are spending on the internet. Its also a great way to introduce a brand that hopefully the kid will use for life.
Credit cards for teens do create an opportunity to educate them in handling personal finance but who is going to teach them? Opening an account when you are 15 means you have also opened a credit history. This can be an advantage later in life, or the beginning of a ruined credit history.
The advantage of a 15 year old with their own card is by the time they graduate college, 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 competitive interest rates when he or she needs it right out of school. The savings on these rates could be substantial.
The flipside of a mature good credit rating is a mature bad credit rating. We do not prepare teens to manage money. Only 7 states require a course in personal finance to complete high school graduation. Teaching credit management falls on the parent and often times they know just as little as their kids do about managing money.
The parents are going to make the final call because they have to co-sign on the card application. It can be an opportunity for the kid to demonstrate his maturity, or it can give him or her a way to ruin his immediate credit future. As a rule, if teens dont show responsibility at school or around the house, they most likely will not handle their own credit any better.
Approving a card for a teen shows trust on the part of the parent and that can help the teen's sense of self pride and reinforces positive behavior. On the other hand, a card migh be held out as a reward for a teen who hasn't done that well at school or at home if he or she cleans up their act. If the parent is strong enough to not be manipulated, the goal of getting a card can be a strong motivation to improve.
Our current economic crisis is due, in large part, to a large number of consumers who do not know how to handle money. Granted there have, and continue to be, predator lenders selling the idea that of course you can afford a mortgage even though you make a dollar above minimum wage. We have got to educate the kids in our schools or we will send out another generation of uneducated, and therefor irresponsible, consumers.
Chris A Smith is the Editor in Chief of a popular and instructive consumer credit web site. You can see more about credit and kids and what you can do to help improve their personal finance experience and what some budget strapped schools are doing to teach practical credit subjects.
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