Should I Give My Kids Credit Cards?

Credit cards are a useful tool for any young adult starting out who seeks to build a credit history that can lead to a strong credit score and profile. A strong credit profile that includes a history of consistent timely monthly payments leads to an ability to attract more credit, eventually allowing an adult to secure larger-ticket loans such as for an automobile or home mortgage.

For young adults, the additional purchasing power that a credit card provides for budgeting and emergencies is nice, but the opportunity to build a strong credit history built on responsible financial behavior is actually more important as an individual moves through adulthood. But, what about kids – should parents give their kids credit cards? Interesting question. Let’s take a closer look.

Just as an adult can work toward building a strong credit profile through consistent timely monthly payments of credit card debt, so can someone a bit younger. Individuals as young as eighteen can have their own credit card accounts – but kids even younger can be added as authorized users to one of their parents’ accounts.

In fact, a 2017 survey conducted by T. Rowe Price revealed that 18% of kids between the ages of 8-14 are listed as authorized users on one of their parents’ accounts! Though not all credit card issuers report authorized user account information to the three major credit bureaus (Experian, Equifax, and TransUnion), it is worth investigating with your credit card customer service department to determine whether they do.

Since all positive credit events that do get reported to the major credit bureaus positively impact the credit profiles of all authorized users, it becomes possible in this way to build a strong credit score and profile for a younger child. Meantime, many major credit card issuers including Bank of America, Capital One, Chase, Citi and Wells Fargo have no minimum age requirement for adding authorized users to an existing account.

The opportunity to build a healthy credit history is not the only benefit that can result from giving your kids credit cards. However, before we discuss this any further, it is impossible to overemphasize the importance of your child gaining an understanding of the responsibility that comes with access to a credit card.

There is no magic bullet test for maturity and readiness, but your child must understand that the credit card usage will be supervised as he or she slowly learns how to use credit responsibly. Decide who will be paying the bill each month and explain the concept of interest expense on an outstanding debt balance.

This is an opportunity to teach your children early about the perils of accumulating excessive credit card debt and the costs involved. Additionally, a credit card can be used as a tool for teaching about budgeting and keeping spending within means – both of which prepare a child for adult personal financial responsibilities.

Finally, a credit card in your child’s name can also come in handy for potential emergencies when travelling or driving and for small online purchases.

There’s little question that there are benefits to helping your kids learn about responsible credit card usage – but only within limits. For starters, helping your kids understand monthly recurring charges such as a cell phone bill that is placed on autopay with a credit card is a good idea.

It pays a bill, prevents late fee charges on it, and provides an opportunity to pay off a relatively small debt balance on the credit card before significant interest expenses accrue. Some credit cards, including American Express, allow cardholders to set a credit limit for an authorized user and provide email updates related to spending history.

Call the customer service department of your credit card issuer to ask about these features. If your card issuer does not allow for pre-set credit limits, you can define an online spending limit with your child and monitor purchases as they occur, keeping certain that they do not exceed the agreed upon limit.

The bottom line is that adding a child as an authorized user can have significant benefits in terms of aiding in building a credit history early while learning about credit and developing responsible habits.

However, a parent knows their child better than anyone – and it is an entirely subjective decision as to whether a child is mature enough to handle the responsibility that comes with access to a credit card. Remember – any purchases made by an authorized user become the primary cardholder’s responsibility.

If you think your child is mature enough for the responsibility involved, great, go for it. Otherwise – better to wait. As the saying goes, “If there’s doubt – there’s no doubt.”

Steven Brachman is the lead content provider for UnitedSettlement.com. A graduate of the University of Michigan with a B.A. in Economics, Steven spent several years as a registered representative in the securities industry before moving on to equity research and trading. He is also an experienced test-prep professional and admissions consultant to aspiring graduate business school students. In his spare time, Steven enjoys writing, reading, travel, music and fantasy sports.

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