Parents give their kids a lot of credit.
Nearly one in 10 parents (8%) with kids under 18 say that at least one of those children has a credit card, according to a CreditCards.com report released Monday.
And other data shows those numbers could be even higher: According to a survey released in 2017 from financial firm T. Rowe Price. nearly one in five (18%) parents of children ages 8-14 says that their child has a credit card, according to data released in 2017 from financial firm T. Rowe Price. That’s 13% of 8- to 9-year-olds; 18% of 10- to 12-year-olds and 19% of 13- to 14-year-olds do, the data shows.
Other parents lend their kids the card: More than half of Americans with kids under 18 have let their kids borrow their credit or debit card to buy something online, according to research released in 2018 by CompareCards.com. Nearly half (48%) of them regret doing it.
Even worse: Among parents who have credit cards, 21% said their kids have used the parents’ card without permission, the CreditCards.com survey revealed.
Of course, kids with credit cards aren’t just walking into a bank and demanding a credit card — card issuers have age limits, after all. Instead, many parents are adding their children to their card as an authorized user, which means their child is allowed to use their card, explains Kimberly Palmer, NerdWallet's credit card expert. Or they may just be handing their own cards to their kids. (Some cards have no minimum age to add someone as an authorized user, others do have it, typically roughly age 13 or older.)
Parents are giving and letting kids borrow their cards for a variety of reasons, experts say: To make it easier for kids to buy things when they’re away from mom and dad; so they have emergency money if they need it; to build up their kids’ credit; and to help teach them financial responsibility. But should you be doing it? Here’s what you need to consider.
How old and mature is your child? Just because other parents are giving — or letting their kids borrow — credit cards at age eight, doesn’t mean you should. “It’s hard to imagine a scenario” where it makes sense to give an 8 or 9-year-old a credit card, says CompareCards.com’s Matt Schulz. He says that the later teen years are probably the most appropriate for giving a kid a credit card — but this all depends on how mature and responsible with money they are. “There are 16 year olds who might be responsible enough, but plenty of 19-year-olds who aren’t,” he says. Do things like looking at how your child handles his or her allowance, for example -- does he spend it quickly and then beg for more? — or how he or she behaves when you shop together to help figure this out.
There also isn’t a “one-size-fits-all answer to when a kid is ready to borrow a credit card,” says Schulz. “There are some 10-year-olds who are mature enough to handle it, and there are 17-year-olds who you shouldn’t let within 100 yards of your credit card. Ultimately, it’s about knowing your kid and setting expectations.”
Have you set spending limits? When giving kids a card, “to protect parents' finances, it's a good idea to choose a card with a low credit limit, and also to be sure to track purchases carefully — on some cards you can sign up for purchase alerts — to make sure the child is not overspending,” says Palmer. “It's important to agree on what is acceptable spending ahead of time, and then use the card to have more conversations about debt, budgeting and being responsible.”
Setting spending rules is also important for borrowing: “Before you lend the card, make sure that your son or daughter knows what you expect from them and what the boundaries are, then be clear on what the consequences will be if they don’t live up to their end of the bargain,” says Schulz. “It's important to have those conversations in advance. It may make for some awkward talk around the dinner table, but it is far better than waiting until after disaster strikes and tensions are at their highest.”
Have you communicated the pros and cons?It’s important that children understand both the risks of credit cards — and the rewards. Clearly communicate risks like the cost of interest in simple examples (say how the purchase of a $100 pair of sneakers could end up costing double that) as well as how late payments and other issues on a credit card can impact credit scores. Also communicate benefits, like how paying your bill in a timely manner can boost your credit score and why that’s important.
And, make sure before you let them borrow or get a card that you’ve let them practice using it with you beforehand. “I believe in talking to kids about money really early in life and giving some early responsibility as well. Let them insert the credit card into the slot. Let them buy something with their own money knowing they’ll wish later that they hadn’t. These things give kids the opportunity to make mistakes when the stakes are low, so they’ll be more comfortable making smart decisions when they’re older and there’s more on the line,” says Schulz.
Have you considered other options? When giving kids a card, Schulz says that it may be good to start kids with something like a prepaid card — where you put a certain amount of money on the card, and that is all the child can spend — before giving them a credit card. Another option is a secured credit card, where you put in a cash deposit (say $1000) and that is what you can charge on the account.
This story was originally published in 2017 and has been updated.