Is it a good idea to give a kid a credit card?

How does a parent teach a 12yrold what ‘interest’ means? I’m ready to teach my kids about the credit financial world we live in. But I keep coming up empty handed.

Where do I start?

Last week Denise LaBuda answered my questions about allowance, and teaching children the value of money. She calls it ‘money apprenticeship’. I love that phrase!

I’ve asked her to help me negotiate through a few more questions. Denise is a volunteer expert for LifeTuner.org.

• Should parents encourage children to get summer or afterschool jobs? (After all,  they have the rest of their lives to work, right?)

“Yes, the apprentice years help them learn to work for others. Lots of key life skills come from summer/afterschool jobs. How to: work hard, handle decision making, learn to request what you’re worth & organize time.  Knowing they earned their own money is empowering and builds self-esteem. The challenge for parents is how much to let kids work based on maturity, commitments to school, sports, and other organizations AND to allow time to for fun and sleep.”

I hear that! My kiddo is only 12, yet her days can be more busy and over scheduled than mine! Ideas for afterschool jobs that might work for a busy kid include:

• Babysitting
• Yard Maintenance
• Pet Sitting
• House Painting
• Web Design!

What other ideas have your kids come up with?

• What savings vehicles or debit ‘cash’ cards are geared towards young(er) kids?

“Any insured bank or credit union will have savings accounts. Credit Unions and Regional/Local banks are usually more kid friendly and may have special savings accounts for younger kids. Pay JR Visa Buxx debit card/Allow Card from Master Card, PocketCard and other online allowances systems are offered by some banks. If parents want more control, these kinds of debit cards are ok and kids can track what they spend besides parents being able to put controls on where the card can be used.”

I’m surprised ‘Jr’ debit cards exist?! When I asked Denise more about them she cautioned me that parents need to remember these cards are ‘branded’ with Visa or Mastercard. Meaning, HELLO! Like any mom wants a credit company marketing to their 10 or 14 yrold? I sure don’t.

• What are PROS and CONS to introducing a real credit card to a tween/teenager?

PROS

“IF, the big if, a child is mature/ready to take on the responsibilities of borrowing money for things they cannot afford today, a credit card is one way to begin the training. With a card your kids can learn to read/understand a card statement, understand the cost of borrowing (interest, fees), learn about payments and minimum balances.

Personally, I would use a mom/dad loan at first with a tween/teen, as the keys to borrowing are to understand the financial trade off of buying now vs. later. All can be done without a credit card.

For a young adult (21+) a credit card can be used to begin to establish credit and can aide them in securing lower cost loans over time for a car, for example, if they have been building their credit history properly. Not relevant for someone under 21.”

CONS

They could have parents who don’t manage credit well, teaching them. Yikes.

They screw up their credit score before they even reach the age of 18.  DoubleYikes

They build up debt and have no real way to pay it back, then mom or dad pays it off and they rely on mom to pay off debt.

They don’t learn to delay gratification and live within their means.

They don’t learn how much it really costs to borrow using a credit card and that it could take up to 21 yrs to pay off a minimum balance if that is all they pay each month.

Wow. I’m convinced a kid needs to learn WHAT a credit card is, and HOW it works well before they ever hold one in their hot little hand. What a fabulous idea to give them a parent loan. That, combined with a ‘Jr’ debit card and parental guidance hopefully will bounce them into adulthood ready to succeed with the financial portion of the rest of their lives!

Part 1 of this series: Teaching the Value of Money| Starting Early

As founder & CEO of the Economic Independence Group (EIG), Denise LaBuda directs development, distribution and sales of educational products and services to help parents, businesses, teachers and non-profit organizations provide children with strong financial education.  EIG offers Money wizdom workshops, products, and content licensing to support the development of money skills and habits in all children. She is also a volunteer expert on LifeTuner.org

Carissa received no compensation for this article.
Photo Credit: Andres Rueda