Should teenagers and college students have credit cards?
How Credit Card Debt Affects Teenagers
According to a survey conducted by EVERFI and AIG Retirement Services in 2019, one in three recent high school graduates has at least one credit card. Among those students who have credit cards, nearly a quarter (24%) carry more than $1,000 in credit card debt.
When a person turns 18 and can qualify independently for a credit card or loan, he or she becomes a prime target for lenders. Credit card companies tend to target young adults as they enter college, with banks and credit card vendors offering sign-up gifts and making it very easy.
To reduce the amount of debt that young people incur, it’s important to start talking about credit with teenagers from a young age. You can discuss things like the impact of high interest rates, minimum payments, and the devastating effect that late payments can have. If teenagers are not properly equipped from the start, keeping up with credit card payments can become difficult if they get out of control.
Why Most Teenagers Should Use Credit Cards
Despite all the negative consequences of credit card debt, the reality is that most students need a credit card. At the very least, it is useful for building a credit history. You need credit to build a credit score, so getting a credit card at a young age is an easy way to do that. Also, one important factor in your credit score is the length of your credit history. The longer you have a line of credit, the longer your credit history will be.
Credit cards provide convenience, but their main purpose should be to establish a good credit history. This way, when the time comes, teenagers will have a better chance of obtaining:
- Car loans and mortgages
- Apartment rentals
- Favorable interest rates on all types of loans
- Lower rates on car and home insurance
- Qualification for jobs (as employers increasingly use credit scores when evaluating job candidates)
The best way to learn is often by doing. And for some teenagers, having a credit card in high school may be beneficial. If you are considering opening a credit card with your teenager before they go to college or start working, consider the following points:
- Is the teenager responsible?
- The credit card is issued to the teenager with a low credit limit
- Parents monitor the teenager’s spending and monthly payments
- Parents discuss the choices made, the consequences of those choices, and the obvious and hidden costs with the teenager
- Parents offer suggestions for making positive changes
Note: Credit cards can also be a great emergency tool. Most teenagers and students will not have a large emergency cash fund in the bank, so having access to money in an emergency is important, and a credit card can serve as a good safety net.
Parents Decide When Teenagers Get Credit Cards
If you want your child to have good spending habits and resist the temptations associated with having a credit card, it is your responsibility to teach them. They should know all the positive and negative aspects, or in other words, the benefits of having a card and the consequences of misuse.
As parents, you should sit down with your child before they start their independent life. Discuss the reasons why having a credit card and a credit history is necessary. Also, you should help them find a good credit card, so they don’t end up signing up for the first one they come across. Once they have the card, make a purchase and explain how to make the monthly payment either by check or electronically so they know what to expect and are familiar with the process.
Note:
Credit cards for students are designed for college students looking for their first credit card. These cards often have similar annual percentage rates to regular credit cards, but they are suitable for young people who do not have much credit history. Talk to your child about opening a student credit card as an alternative to a traditional credit card.
Conclusion
The best way to properly prepare your child to use a credit card is to take the time to teach them early on so they can build credit responsibly.
Remember to explain to them why they should use the credit card exactly and who is responsible for the payments. You want your child to use this tool responsibly, so it should be clear that they need to keep up with the payments. This way, they will be able to start off strong with a solid credit history and have established sound financial habits for the future.
Frequently Asked Questions (FAQs)
Can kids get debit cards?
Children and teenagers can get debit cards with parental consent. In fact, some cards are specifically designed for kids ages 6 to 18, such as the GoHenry card, which also includes an educational app.
Will adding my child to my credit card help improve their credit score?
Yes, your child can improve their credit score as an authorized user on your credit card. You will have to adhere to the issuing bank’s rules regarding minimum age or any other requirements. However, it is your responsibility to be accountable for the payments. But be cautious; just as timely payments and responsible card use can help build your child’s credit score, bad credit decisions using your card (whether by you or your child) can negatively impact their credit history.
Thank you for your feedback!
Sources:
Everfi. “Teens and Their Financial Futures: Helping Gen Z Navigate the Gig Economy, Job Benefits, and a Budget,” Page 20.
Code of Federal Regulations. “12 CFR §1026.51.”
myFICO. “What’s in My FICO® Scores?”
GoHenry. “GoHenry.”
Source: https://www.thebalancemoney.com/should-teens-and-college-students-have-credit-cards-1289626
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