If you’re like a lot of parents, your first thought upon reading this title was, “Are you crazy? Why would a child need a credit card?” But believe it or not, the reasons extend well beyond the shopping mall.
Credit cards are handy for children traveling abroad or even locally with school or a youth group. They won’t be renting cars, but they will be eating and almost every fast food chain now accepts them. It’s also something your child can keep handy just for emergencies. There are plenty of other reasons why minors should have credit cards, including as a tool to teach financial responsibility.
Giving a credit card to a minor really is a decision only parents or guardians can make. If this is something you’ve been considering, here are some options to consider.
It’s important to realize first that minors cannot have their “own” credit cards. Issuance of a credit card is a contractual matter and because of their age, minors aren’t allowed to enter into legally-binding contracts. Therefore, a minor’s credit card has to be attached to a parent or guardian’s account.
Listing a minor as a secondary cardholder is easy. Applications and credit history checks aren’t required because what matters is the creditworthiness of the primary account holder. A secondary card might have a different account number, making it easier to track expenditures or to cancel if it’s ever lost or stolen.
But on the downside, the primary account holder assumes full responsibility for making all payments. Should problems arise, it’s the primary account holder whose credit history is affected.
These look and feel just like credit cards but there’s one big difference: no credit’s involved. Debit cards are linked to bank accounts and as purchases are made, funds are immediately withdrawn. The downside of being linked to a parent’s checking account is immediately apparent when the minor doesn’t control its use and the parent suddenly finds a depleted bank account. So do yourself a favor and find a bank that offers youth accounts. That way, your child can only use the debit card as long as there is money in his/her account. If spending is managed, youth debit cards are great for teaching children that they have to earn money before they can spend it!
The difference between a charge card and a credit card is that at the end of each billing cycle, the balance must be paid in full; interest doesn’t accrue. It’s another situation in which the minor is considered a secondary card holder. Because you can’t carry a balance with a charge card, it is a good way to stress the importance of managing spending.
These are cards onto which you load money that can be used for making purchases anywhere the other major credit cards are accepted. As long as money’s available, they can also be used at ATMs for cash withdrawals. When funds run low, all mom or dad or the child has to do is reload!
This too looks and feels like a credit card, but it’s more like a debit card because the user can only make purchases as long as the card’s funded. The way this type of card is funded is by making deposits to the institution which issues the card. Secured cards are often used by minors trying to establish credit history. From a parent’s point of view, it’s a good alternative to co-signing.
To co-sign or not to co-sign
Most parents do whatever they can to help their children succeed. That’s admirable, but when it comes to co-signing for a credit card, they really need to think twice. Once they turn 18, young adults can apply for credit. If they’ve not established sufficient credit though, they won’t be approved without a co-signer.
And the co-signer assumes responsibility for making payments. If your adult child doesn’t have a job, you’ll be paying the bills. If you don’t your credit is affected. What’s worse, if your adult child hasn’t been taught good money management skills, you might end up paying down those cards you co-signed for a long time!