Since credit card companies cannot offer anyone under 18 a credit card, credit card companies provide easy ways for parents to offer teenagers the thrills and ease of credit: pre-paid/re-loadable cards and low-limit cards. These cards can be a convenience to parents, especially when teens have gas tanks to fill, but there are factors that should be considered.
Why Teens Have Credit Cards
Credit and similar cards have a distinct advantage over cash: if they get lost, they can usually be replaced. Teenagers should not carry around large amounts of cash; it isn’t safe and it is easy to get lost or stolen. A card can also be lost or stolen, but usually there are steps in place to recover the money. Also, learning to use credit while still living under a parent’s guidance has the advantage of being in a protected position. Once teenagers are living independently or in college, parents can not filter offers or help teenagers choose options as easily.
Using a pre-paid card is a good test to see if a teenager is ready for a credit-card. The parents can order cards from existing companies, usually for a fee, or get a store card. If a teenager can keep from spending the whole card within a certain time-frame and account for how the money is spent, then parents should feel confident about the child’s ability to use magic-money-cards. If the pre-paid card gets lost, then forget offering a credit card.
Some credit card companies will allow parents to get a teen card with a low limit (perhaps a few hundred dollars). The teenager’s name is also on the card, which allows the teenager to start a positive credit record if bills are paid on time. Also, teenagers will learn about the tricky world of credit card billing, because anyone who uses credit cards needs to understand that credit card companies make the rules. Teenagers can learn about online billing, billing cycles, and payment options.
It certainly wouldn’t hurt to have the thrill of “magic money” cards wear off while parents can still help guide teen choices. Parents should help teenagers understand wise uses of credit, help teenagers understand the importance of a positive credit rating, and the misbalance of power between creditor and consumer. However, if teenagers are not ready for the responsibility of credit, they should not be forced to accept it. Credit cards will always be available to them as adults, so there is no reason to rush the experience.