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Why Give Your Teen a Credit Card?

Most parents want to teach their teenagers about using credit responsibly. Parents don’t want their kids to repeat their mistakes and end up struggling with credit card debt. So, the typical lesson plan is to give a teenager a credit card in hopes of teaching them to manage credit. But when it comes to credit cards, is hands-on-experience the best teacher?

Besides teaching your children to manage credit cards, there are a few other good reasons to give your teen a credit card. When your child is ready to buy a car or house, a few years of responsible credit card use will have given them a good enough credit score to qualify for a loan, possibly for a good interest rate. Not only that, a credit history will help your child rent their first apartment, get good insurance rates, and possibly even get a job considering that many employers now check credit as part of the hiring process.

Video: Debit Cards for Kids

Reasons Against Allowing Your Teen to Have a Credit Card

credit cards teensEven though there are several very good reasons for giving your teen a credit card, there are some bad reasons, too. Many teens aren’t ready to handle the responsibility of what seems like free money. Teens often have unstable job histories, which would make it difficult for a teen to pay a credit card bill. Teens have a wide definition of emergency, so even if you tell your child to use the credit card for an emergency, they could overspend the credit card limit evoking over the limit fees and a penalty interest rate.

The documentary Maxed Out revealed the harsh reality of the effects credit card debt can have on teens. Knowing that two college students committed suicide over thousands of dollars in credit card debt should put the matter into perspective for many parents.

Some Teens Don’t Need Parental Permission for Credit Cards

why give your teen a credit card?Unfortunately, you may not be able to keep your teen from getting a credit card. Once your child turns 18, they’re legally able to sign a contract, and that includes a credit card agreement. Unless you have power of attorney over your child, you can’t stop them from getting a credit card. Some credit card issuers will even give credit cards to children under the age of 18.

Parents’ Legal Responsibility for Teen Debt

If your teen racks up debt on a credit card that only has they’re name on it, then they’re solely responsible for paying off the debt. Unless you’re a joint or authorized user on the credit card, you’re not legally responsible to pay back the balance. However, credit card issuers figure most parents will bail out their teenaged- and college-aged children, which is why they’re so willing to dole out credit cards to consumers with no income or credit history.

Video: The Pros and Cons of Giving Your Teen a Credit Card

Alternatives to Teen Credit Cards

teens and credit cardsYou may opt to get your child a prepaid credit card that acts kind of like a gift-card. You load money onto the card and your child can use it until the balance is gone. You or your child can load more money onto the card so your child can continue using it.

Secured and unsecured credit cards are also options for giving your child a credit card. The major difference between the two is that a deposit is made to secure the credit limit of a secured credit card. You might allow your child to save up enough money to get a secured credit card. That way, the child has a vested interest in managing the credit card directly. Too many late payments forfeits the deposit. And going over the credit limit brings fees, interest rate increases, and sometimes a reduction in the credit limit.

Deciding To Give Your Teen a Credit Card

Some teens may be able to handle the responsibility of a credit card, but only you as the parent will know that. If your child has demonstrated financial responsibility in other aspects of their life, a credit card may not be such a bad idea. Be careful, putting a credit card in a teens hand, could be putting a gun to their head. Read About.com’s Fast Facts on Teen Credit Cards and Dave Ramsey’s The Truth About Teens and Credit Cards for more information about teens and credit cards.

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