Should teens have credit cards?

Yes

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by Gary Brents

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I believe that any lesson's on finance, which allowing your child to grow, is a positive. Most professionals in the field will agree that the lessons of the past, are not proving to be very valuable to our teens, in today's economic reality. "A penny saved, is a penny earned" has become obsolescent to invest and make your money work as hard as you do.

For any lesson to be effective, we as adults must have limits and controls over the outcome. Many times, Parents are all too easy with trusting our child. We would all like to believe that we can fully trust our teens, and they would not even dream of hurting us. Especially when we emphasis the importance of this instrument we are handing them; not to mention the responsibility that we are entrusting them with.

I have seen families absolutely torn apart, because Little Susie, or Little John, was trusted with a "real" line of credit, on the parent's dime. Then unknowingly to the Parents, their prized child ran up a thousand dollar bill and lost their jobs. Well it is no wonder that soon the phone is going to start ringing, with the credit card collection departments, demanding payment.

As a child, the children protected from the issues pertaining to the financial woes, of the family. From memory, I can recall the times when the kids, in our family, were very skeptical when mom and dad claimed they were hurting financially. It caused many issues between our family members. When my father sometimes would come out and proclaimed that we, the kids, had no business asking about our financial issues; that alone caused issues.

We have found that when we are not open when finances are tight, we are faced with our children's skepticism. We have learned that we must be open, while still protecting them from the vary harsh realities of the impacts adults must endure. But, we also have an obligation to show them that there are some very "real" consequences when bad decisions are made. Our children have taught us some very insightful lessons, during our teaching them lessons of finance.

One must recognize that in order to make your money go further, one must work in the realms of credit and credit extension. I do not advocate, allowing any child getting in over their financial heads. As mentioned before, this can be suicide for the entire financial well-being of the family. However, such lessons of responsibility in financial affairs is paramount, to ensure that when your child goes out in the world, they are taught how to research rates, premiums, and other costs hidden, associated with credit.

My wife and I, have found a happy medium on this lesson. We have absolute control over the outcome, and impact it has on our family. No, we did not obtain an open line of credit on our names. We went out and obtained prepaid or secured Credit/Debit cards, for our teen.

Currently on the market, there are offers for secured instruments, which we subscribe to. When our child works hard, we put funds on one of these cards, for that child. We place funds on the card, as a "BONUS" for exceptional work in school, at home doing chores, etc..
Obtaining a Secured credit card, forces child to decide whether or not to use cash or the pre-paid credit card. This forces them to recognize the cost of credit. They have to reflect on whether or not the item they want, worth paying more than what an item is worth. Should they use the prepaid credit card, they will be paying added charges for ATM disbursements.

After working with this model, we found that the child made better financial choices. They had more understanding of how economics can affect the family dynamic; when it comes to financial decisions. Our kids know that if they had, let's say $50.00 on their card, the true buying power of the card may be less, due to the cost of associated fees. True, they get what they want immediately, but the costs are felt when they make a subsequent purchase.

With all of the experiences we have had, in practice, of teaching our children financial responsibility, a secured credit line has been an invaluable tool. If the money is not there, our child knows she can not have what she wants, unless the money is available to pay the cash, or funds to place on the card.

Currently, our daughter puts approximately 20% of her allowance, on her card and keeps the rest on hand or in a liquid savings and checking account. Currently, when we stress that we are in a "financial crunch", she knows that we are watching every dime, and there will be sacrifices. She knows that we, as parents are not hiding anything from her. This has brought the trust level up, on every facet of our family interactions.

Yes, within reason and resource, we should allow Teens to have access to a secured level of credit. We should not be teaching our children that credit is free, as would be the case on an open line of credit; sponsored by us, the parent.

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