How to teach your children about
Credit cards for kids. People either
latch onto the idea or loathe it.
"It's appalling," says Ken McEldowney, executive
director of Consumer
Action, an advocacy and educational organization. "It's like
saying, 'Hey, let's get you started going into debt early.' "
Wendy Weinberg, executive director of the National
Association of Consumer Agency Administrators, agrees. "Consumer
groups have generally been against marketing to college kids; the
high school students is one step worse."
is a powerful tool
But another faction sees credit cards as a powerful tool, and
thinks children should gain experience using them before they turn
18 and can obtain one without parental consent.
"Taking loans is an important skill," says Sharon
Rich, financial planner and psychologist with Womoney
in Belmont, Mass. "I don't think it's a bad idea for a child to
have some responsibility for that."
The key to success is education. Parents must
be vigilant and involved with teaching their youngsters financial
"I think this product is right in certain families,"
says spokeswoman Diana Don of Capital One's "High School Credit
Card," a co-signed MasterCard for 16- to 18-year-olds. "It may not
be right for families who don't want to teach these skills. This
is very important to understand."
Experts say parents should take several gradual financial steps
before giving a kid a credit card.
- First, see to it that the child has a checking
account. "Children first need to learn the basic skills of writing
a check and tracking money," says Rich.
- After they have shown they can balance a
checkbook, let them use a debit card, which looks and acts like
a credit card but is tied to the checking account.
- When they have mastered those basics, apply
for an extra credit card under your own account at a retail store
- Tell them how the card works -- starting
with the connection between charging one month and paying the
next. Emphasize that it's not free money unless the balance is
paid in full before the grace period expires. Explain interest
and how it compounds if a debt piles up. Look at the fine print
and review other key terms such as late fees. Stress the importance
of keeping the card safe, and what to do if it's stolen or lost.
- Set limits and monitor the child's usage.
"See what happens when you tell them they can spend $100 on a
wardrobe," says Rich. "Build up their level of responsibility."
- When you feel they are ready for a card in
their name, encourage them to shop around for low rates and fees.
- Emphasize the importance of a good credit
history and how a bad one can thwart their efforts to buy their
first car or apartment. Show them how to get a copy of their credit
- Give the child responsibility for paying
all or part of their balance from an allowance or job. "If the
child isn't earning the money, a lot of the reality is lost,"
says consumer advocate Weinberg. "I don't think most people appreciate
the value of money until they are sitting at a desk pulling in