Parents should consider moving on to a credit card only after the teenager demonstrates responsible management of cash-based accounts, said Paul Golden, spokesman for the National Endowment for Financial Education and the father of two teenagers. “I believe in using a stair-step process,” he said.
Here are some questions and answers about credit cards for teenagers:
How can I tell if my teenager is ready for a credit card?
If your child asks about credit or seems curious when you use a credit card, that’s a good time to start a conversation, Mr. Golden said. Sara Rathner, a credit card expert at the financial website NerdWallet, said parents should consider how teenagers behaved when they got cash. Can they keep track of it? Do they spend it all at once? Losing money or making impulsive purchases may suggest it’s best to wait awhile before introducing credit. “You know your teen better than anyone,” she said.
Can I set a lower spending limit on a credit card I give my teenager?
Possibly. Most people don’t realize that they can have spending limits lowered on their credit cards simply by asking their bank, Ms. Fisher, the financial planner, said.
Some banks allow you to set very low limits for cards issued to authorized users. That way, you don’t have to expose your entire $10,000 line of credit to a teenager who may be excited about, say, “in app” purchases while playing a favorite online video game. American Express, for one, allows borrowers to set limits as low as $200 for cards issued to authorized users.
When should young adults make the transition to their own credit card accounts?
Parents should talk with their child in advance about when the financial apron strings will be cut, said Paul Siegfried, senior vice president and credit card business leader at the credit bureau TransUnion. “Have an exit strategy,” he said. Each family will have its own approach, he said, but a reasonable deadline may be that “authorized user” status will be revoked three to six months after the child graduates from college or gets a full-time job.