We're often warned that credit cards are dangerous, and parents don't give dangerous things to their children. But things have changed, and there are very valid reasons why more parents are giving credit cards to their kids.
My parents warned me
Before I left for college my parents told me never to get into credit card debt. That is good advice, but that's as far as it went. I didn't know how credit cards worked or what the consequences of not heeding this advice would be.
So I went to college and promptly got myself into credit card debt, a lot of it, which took me time to dig myself out of and damaged my credit score for years. (This was before sweeping reform made it harder for college kids to get credit cards. They were handing the things out like Halloween candy on campus when I was a student).
But no one else did
How much personal finance education did you get in elementary school? Middle school? High school? Probably not a lot. Only 17 states require students to take a course in personal finance.
Why does America drop the ball on what is without question one of the most important subjects for a student to learn? Well, I'm sure we can all put our tinfoil hats on and come up with any number of plausible conspiracy theories as to why this is so, but let's just move on and learn what we can do about it.
A credit card is a tool
A hammer is a tool, too, and you can use it for lots of things. You can use it to build a house, or you can use it to smash out the windows of your car. A credit card is not so different to a hammer.
Used well, a credit card can do lots of amazing things. As well as providing valuable services like fraud protection, a credit card can:
- Improve your credit score
- Earn you free flights
- Earn you hotel stays
- Insure you for a cancelled trip and lost luggage
- Net you thousands of dollars in cash back
When a credit card is not used well, it can plunge you into debt for years and ruin your credit score.
They're going to learn it somewhere
You can't protect your kids from everything as much as you wish you could. If you don't teach your children how to properly use a credit card, where will they learn? Not in school. We already established that.
I'll tell you where they'll learn, the school of hard knocks like I did. (I also walked to school in the snow, up hill, both ways in case you were wondering). So it's better that your kids learn how to properly use a credit card from you.
In theory or in practice
Okay, you'll teach your kids about the proper usage and care of a credit card. You'll tell them of all the delights that await them when they use a credit card the right way and warn them of the horrors that surely await them if they use them like a drunken sailor on shore leave.
That's great mom and dad! But I was a kid once, and so were you. When my parents had these little heart to heart talks with me, my eyes glazed over because I was thinking of something more interesting, which included pretty much anything other than talking about credit cards! Admit it, your eyes glazed over, too.
This is the reason more parents are giving credit cards to their kids. Because in theory is one thing, and in practice is another.
Let us count the reasons
Giving your kid a credit card isn't automatically going to turn them into one of the little horrors you see on Rich Kids of Instagram (seriously, don't look at it, it's gross). There are really good reasons to give your kids a credit card.
- You Control It:
Your kid (if they're under 18) won't get their own credit card. They will be an authorized user on your card. That means you can see what charges they make. Now of course, they could run out and buy a pony or something, so you need to explain what the card can and cannot be used for. They step out of line, and you take the card away.
- It Builds Credit:
You need a credit score. That's just the world we live in now. If you want to rent an apartment or finance a car, you need a credit score. Part of what makes up a credit score is length of history, so the longer someone has a credit card, the better their score in this regard will be.
- It's a Necessity:
You must have a credit card to do things like rent a car or a hotel room. There are workarounds, but it's simpler just to have a credit card.
- It's Handy in an Emergency:
If your kid decides to attend an out-of-state college, or even an in-state college if you live in a vast state, they will be hours away from you. What if they were stranded on the side of the road with a broken down car and needed a tow truck? College kids aren't usually rolling in cash, so a credit card can save the day in a situation like that.
- In Practice:
Actually having a credit card takes the proper use out of the theory category and puts it in the practice category. Maybe it's just the personal finance nerd in me, but I like checking my credit score and seeing it go up. When your kid has their own card, they can check a site like Credit Karma and see their score go up when they use the card responsibly and down if they don't.
It's your job
When you made the choice to have a kid, you made an agreement with them and with society to teach them things. You teach them manners, respect, a good work ethic, good health, and a million other things.
One of those things, and one of the most important, is to teach them good personal finance habits. Perhaps more than anything apart from health habits, personal finance habits will be the most impactful thing in their life. It's your job mom and dad. Don't let us, or them, down.