Pros and Cons of Credit Cards for Students and Teens

June 15, 2009

in Personal Finance

Learning to use credit responsibly is important for every young adult. If one starts out on the right foot, he is less likely to let debt get out of control than if he starts charging everything in sight as soon as the opportunity presents itself. But at what age are credit cards appropriate?

According to credit card companies, allowing teens access to plastic is a good thing. They say that learning about credit with parental supervision gives them a better chance of managing it successfully when they’re on their own. But we all know that credit card companies have a financial stake in getting their cards into the hands of as many people as possible.

Still, there is a lot of talk about the merits of providing teenagers and college students with credit cards. Here are some arguments on both sides of the issue.

Pros

* Credit cards come in handy in an emergency. If your child’s car breaks down, for example, a credit card could be used to pay for the tow bill and repairs. And if you have a college student who is far from home, you can rest easy knowing that he has quick access to funds if needed.

* As a parent, you can provide guidance while your child is starting out with credit. You can explain how interest and fees work, set rules for credit card use, and instill the importance of paying off the balance as quickly as possible.

* Credit cards can help young people build a credit history. This will be helpful when it comes time for your child to buy a car or home.

Cons

* There’s lots of temptation to use credit irresponsibly. Kids are under pressure to have the latest fashions and hottest new gadgets. When given a credit card, they may be more likely to purchase these things even if they can’t afford them.

* In most cases, a parent must co-sign in order for a child under 18 to get a credit card. That means that Mom or Dad is also responsible for the bill. This puts the parent’s credit at risk if the card is misused.

* Running up too much debt or failing to make payments can get a young person’s credit history off to a bad start. That will make it more difficult for him to get credit when he is older.

If you choose to get your child a credit card, it’s crucial to educate him about financial matters first. Starting out with a checking account is wise, because he must keep track of his spending to avoid overdrawing. Once he gets the hang of that, a debit card is a good next step. After he learns to keep track of his debit card use, and after a long talk about proper use of credit, a credit card may be considered.

We all want the best for our children. Teaching them to handle credit successfully can help prevent financial disaster when they are adults. But whether they should have hands-on experience with a credit card depends largely on the individual child.

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