Kids and Credit Cards: How Young Is Too Young?

Review, Discuss Bill Monthly
When you get the monthly credit card bill, review every single charge with your children. If you believe there are some unnecessary charges, then make sure you address it with them right away. Hobson is in favor of a new feature of the credit card act that requires bills to state the length of payments and the total interest charges you will incur if you only pay the minimum. She says it's a good way to teach teens about interest, and about the importance of paying their bill on time and in full.

Be a Good Role Model Yourself
Make sure you're demonstrating good credit card behavior yourself, Hobson says. Like everything else when it comes to parenting, you need to be a good role model. If you can't manage your own credit card, then no matter how hard you try, your teen will pick up your bad habits.

Have a Payment Plan
According to Hobson, another important thing to discuss with your teen is how they will pay for their charges. If they're not working, but are getting an allowance, Hobson recommends tying that allowance to their purchases. They should only be spending money that they have, otherwise they will really not have learned to manage their credit cards. And for big ticket items that you buy for them, they should have to pay you back with interest.

What Kind of Card Should You Get for Your Teen?

Get Card With Low Limit
Hobson says parents should give their children a credit card with a low limit, and find out whether you have the flexibility to change the limit at any time. For example, last year American Express launched an innovative benefit called "supps with limits." Your teen can get a supplemental card, and the parent has full control over the limit at any time.

Consider Charge Card or Debit Card
Hobson prefers charge cards, which differ from credit cards because they require you to pay your full balance each month. She also says that a debit card could be a good substitute for a credit card, because new laws have made opting-out of overdraft protection automatic, and your teen can only spend as much as they have.

Web Extra Tips:

In addition to getting a charge card with a low limit, make sure you only get your teen one credit card. Nobody needs more than one credit card, regardless of their age.

The CARD Act now automatically opts you out of overdraft protection. This is a very good thing. This so-called "protection" allows debit card users to overdraw their accounts in exchange for huge fees. Now you actually have to contact your card company and let them know you want this privilege. Do NOT opt in for this protection on your teen's debit card. If they purchase something that goes over their limit, and they do not have overdraft protection, then the transaction will be disallowed, which is exactly what you want.

In addition to reviewing the bill with your teens, link their credit card to a site like Mint.com, which will help them easily track their spending, create a budget, and it will give them a good understanding of what exactly they are spending their money on.

Make sure you review your credit report and your teen's credit reports from all three rating agencies annually. The only true place to get a free credit report is www.annualcreditreport.com.

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