First, don't freak out. I know that the idea of handing the power of a credit card over to your kids is a heart attack-inducing concept, but hear me out. Teaching our kids about money and credit will better prepare them for their financial future, and hopefully steer them away from the same financial mistakes we made when we were young adults.
And let's be honest, you can't actually give your kids a credit card. The law says that anyone under the age of 18 cannot have a credit card in their name. However, you can add your kids to your credit cards, which raises the equally confusing question -- should you? That's up to you to decide, but I think it is a key tool in teaching your kids about how to properly use credit, which will establish their credit score at a young age and help make it easier for them to easily rent an apartment, get a loan or even buy a house after college.
How to Teach Your Kids About Credit
Toddlers: Start them when they're small. If you teach them at a young age -- when their brain is developing -- about money and how to be smart about saving, they are more likely to be financially savvy when they get older. Start when they are very young (3-5) by letting them pay for things at the store with your money. Answer their questions honestly when they ask (and they will ask) about how money and credit cards work.
When they get a little older, you should explain to them about credit and how swiping a credit card doesn't mean you don't have to pay for things. After you buy something with your credit card, show them your monthly bill after so they understand how credit cards work.
Tweens: A good trick to teach your tweens about credit is setting up a "family credit card." If they want something that they can't afford, tell them you will buy it for them with the family credit card. At the end of the month, they will need to pay you back for whatever they bought. If they don't, you will charge interest. This will get them familiar with the penalties of not paying their credit card bill every month. If you want to get creative, you can also introduce cash back bonuses or a point system to familiarize them with credit card rewards and make the whole experience fun.
Teens: This is where I'm going to lose most of you. When your kids turn 16, add them to your credit card. That doesn't mean give them free reign of the card. Give them a spending limit. Make sure they know they have to pay the balance every month, and if they don't, make them pay the interest and penalties. Monitor your balance very closely, even daily if you have to. It may seem like a chore, but giving them to freedom to learn about credit cards first hand will help them be more responsible with credit cards in the future.
Is this always the answer? No. If your teen has made it clear they cannot be responsible with credit, then it is not worth the hit that your credit will take by adding them. Ultimately, it is your credit score on the line, so if you are not comfortable with your kids using your credit cards, then don't add them.
Young Adults: Once your kid turns 18, they should sign up for their own credit card. It's better to do this sooner rather than later because the younger they are, the more likely that the credit card lender will ask a parent to cosign on the card. That way, you can help monitor their spending when they go off to college, although hopefully, if you followed the tips above, you will trust them to use their credit card correctly. Here is a good list of the best credit cards for college students.
Yes, handing over the power of a credit card to your kids might be a scary concept, but teaching them about credit early and giving them the tools to be financially successful is much better than just throwing them to the wolves and letting them make financial mistakes that might hurt them in the long run.
-- Rachel McMahon
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