One Mom's Five Step Plan for Establishing Ground Rules with Teen Credit Cards
As a parent, for me to give my teen a credit card, the following would have to occur. As a teen is still under my roof and should not have the type of expenses one might need a credit card for (which is non-perishable items) - so the credit card would be for emergencies only, unless the teen is very, very financially fit.
Step One: Teens need to have an income
A teen should have a job with income, outside of their allowance. This puts them on a path to responsibility and if they have the credit card, they can pay it off - which is as it should be. No job, no credit.
Step Two: Teens need to have a savings account
If your teen has not learned the importance of saving, and accruing funds - they don't know what spending really means. Some kids really think that you just go to the bank to get money with a plastic card (and forget that the money was earned as is not from an umlimited fountain of wealth)
Step Three: Teens need to have a checking account
This will teach your teen yet another way money is exchanged, and help them with record keeping which is needed for staying financially fit. By using a check register to keep track of expenses, your teen will see where and when they spend.
Step Four: Teens need to have a debit card
If your teen is successfully using a checking account, it's time to introduce a debit card. Many of these are visa or mastercards as well, but you can have that option turned off the card. This will teach teens how easy it is to get cash from a machine, and how easy swiping your card for inconsequential items like a pop and burger can turn into a zero account balance.
If the debit card is tied to their checking account, the money is immediately removed. If you allow them the visa or mastercard check cashing debit card then they may have a delay. If your teen can't handle this form of credit without overdraft fees they are not ready for a credit card.
In all cases, a debit card tied to a checking or savings account should be sufficient for a teen even in an emergency situation. If your teen is travelling or away at college, you may consider them using a parent credit card for approved expenses which you discuss ahead of time, or allowing them to apply for their own line of credit.
Step Five: Teens should apply for their own line of credit
Eventually your teen will be a grown up, and unless you've taught your teen to be a cash only person, it's likely that establishing credit is not a bad idea. If they have shown responsibility in the preceeding steps and are holding down a job, then allowing your teen to apply for their own line of credit can be a good thing.
Be sure to help your teen decide what sort of card they need, and an American Express may be the best bet for a starter card as it teaches you to pay off in full each month.
If you've adhered to the above plan and taught your child all you can about budgeting and having enough money to cover your purchases, you can do no more as parent's eventually have to let control of their teen go so they can grow into adulthood where they will make their own financial decisions.
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