Teenagers and Credit Cards

Should Teenagers Have Credit Cards?
Having their own credit card can help teach teenagers how to manage a budget, learn financial responsibility and be the first step in establishing their own credit. These benefits only come with parental supervision. Left to their own devices, teens armed with credit cards can create mounting debt that will spiral wildly out of control. It’s up to the parents to set boundaries, keep an eye on spending and know when to step in to avoid economic disaster.

The Credit Card Act of 2010
As of February 2010, credit card applicants must be 21 years old, have a co-signer or be able to show proof of income and the ability to repay loans. While these changes make it more difficult for credit card companies to target teenagers, it gives parents more control over the financial habits of their teens. Before it’s inception of The Credit Card Act of 2010, it wasn’t unusual for adolescents as young as 16 to incur thousands of dollars of debt without their parents’ knowledge, leaving Mom and Dad to foot the bill.

Using Credit Cards to Teach Financial Responsibility
Several credit card providers have created products to comply with the new regulations while holding on to the teen demographic. One option is the “pre-loaded” (or prepaid) card. This product allows parents to “load” the card with funds and to later replenish those funds when needed. This gives the parent control over how much their teenager is spending, without risking damage to their own credit rating.

Another option is the “custom limit” card. One credit provider allows the parent to issue a separate card, in the child’s name but on the parent’s account, giving them a separate spending limit, determined by the parent. With this option, the parent can control their teens spending, while giving them the freedom to make budget decisions and teaching them importance of maintaining a healthy credit history.

With both options comes the advantage of a monthly statement that the parents can review with their teenagers, identifying where their money is going each month and creating the opportunity to offer suggestions to better manage their spending.

A Plastic Society
While cash still works in most situations, more and more transactions require some form of plastic. Teens love to shop on the internet, but it’s nearly impossible without either a credit card or debit card. When the time comes for parents to send their teenagers off to college, they’ll need a convenient way to make sure their student has access to funds for books, clothes and all those little things they didn’t think of beforehand. What about emergencies? Medical care, auto repair, surprise class fees and other unexpected expenses can all add up for the college student who is away from home. Access to credit can come in handy for those emergencies. When the student has had careful preparation and guidance from her parents on debt management and financial responsibility, they’ll be better prepared for those situations when they arise.

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