Can I Open a Credit Card for My Kid?

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When your children are young, it can be impossible to imagine entrusting them with a credit card. Yet eventually, they’ll reach the age where they will need to make their own purchases without you. It could be a movie ticket, lunch with friends, or a few items on your grocery list, but the time will come when you will want your child to have his or her own credit card.

Strictly speaking, parents cannot open a credit card account for their minor children. Only a person age 18 and over can enter into a legally binding contract, which includes applying for a credit card as the primary account holder. Plus, thanks to the CARD Act, borrowers under 21 need to demonstrate an ability to repay or have a willing co-signer. 

Nevertheless, most credit card issuers allow minors to be added as authorized users to an adult’s credit card account. American Express, for instance, allows parents to add children 15 years and older as authorized users to an existing account, a spokesperson confirmed. You can call your specific issuer to ask about their requirements. 

What’s an Authorized User?

As an authorized user, you child will receive a credit card with his or her name embossed on it. They will be able to use the card to make charges to your account, but they generally won’t have any other privileges that primary account holder has, such as adding other cardholders, closing the account, or redeeming rewards.

Furthermore, authorized cardholders are not responsible for repayment of debts. The primary account holder is always responsible for the payment of all purchases, interest charges and fees. However, you account will likely appear on your child’s credit report, which can help them to establish good credit at a very young age. (Again, ask your issuer if they report their authorized users to the credit bureaus, particularly if your aim is to help your child build credit.) 

Before Adding Your Child to an Account

When you add your child as an authorized cardholder on your account, you are granting him or her significant purchasing power as well as serious responsibility. On one hand, your child will be able to make charges to your account, just as you can. This can offer parents peace of mind as their child can always pay for a meal or a taxi in case of an emergency.

But before handing your child a credit card, you need to be assured that it won’t be used for purchases that you did not, or would not approve of. An expensive surprise is the last thing that parents want to see in their credit card’s monthly statement. Plus, high credit card balances can damage your credit score. (You can see where your credit currently stands by viewing two of your credit scores, updated every 14 days, for free on Credit.com.)

Teaching your Child to Use Credit Responsibly

Given the benefits and risks of credit card use, it’s not a good idea to just hand your child a credit card without teaching him or her how to use it responsibly. Instead, it’s important to take the time to slowly introduce your children to the concept of credit card use long before the receive one.

For example, you can start teaching your children from a very young age the basics of how credit cards work. Kids watch their parents use credit cards to make purchases, which can seem almost like magic. But children must also be taught that each charge must eventually be paid for using the money earned at work. Just as children watch their parents make purchases, it’s important to show them how you pay your credit card bills.

Later parents may wish to give their children a prepaid debit card or a gift card to use for specific purchases. You can load the card with money from your child’s allowance or savings, and give him or her some choice of how to spend it. (This can be a good plastic primer, but, be aware, prepaid debit cards and gift cards don’t build credit.)

Eventually, parents may want to order an additional credit card from their account for their child’s occasional use. For example, you can give your child the card to make a specific purchase, and ask for it back afterwards. You can even enter into an agreement that they can make charges of their own, so long as they notify you in advance, and pay you back from their savings or allowance.

The Bottomline: You can’t open a credit card account for your kid, but you can allow them to use a card that’s attached to your’s. By slowly introducing your children to the benefits and risks of credit card use, you can give them the purchasing power they need while teaching them valuable lessons at the same time.

At publishing time, American Express products are offered through Credit.com product pages, and Credit.com is compensated if our users apply and ultimately sign up for these cards. However, this relationship does not result in any preferential editorial treatment.

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

 

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How I’m Teaching My 9-Year-Old Money Lessons (& She Doesn’t Even Know It)

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You might be too occupied with preparing your taxes to notice, but April is Financial Literacy Month. You might be financially literate, but are your kids? If you’re not doing so already, this is as good a time as any to start teaching them about money. After all, it’s your job to send financially responsible young adults out into the world, plus there’s a bonus —the more they understand about money, the less they’ll whine about wanting this toy and that pricey pair of sneakers.

Here’s the plan I’ve put into place with my daughter, Sadie, who is almost 10. I hope that it helps provide a framework for you to teach your own kids. And please comment below — I’d love to hear your successes, failures and suggestions.

Age 2-4: Coin Counting

Sadie could differentiate between different coins — and eventually bills — at this age. She also loved to count them (quantity, not value) and drop them into her piggy bank, which was a great excuse to reinforce her counting skills. Playing with money was just as fun as playing with toys, so why not?

Age 4-6: Savings Account, Shopping

We set up a savings account in Sadie’s name and brought her to the bank so she could participate in depositing her monetary gifts into her account. She loves to watch her balance grow!

There were (many) times when we wanted to leave her at home when we had shopping to do, but we found that shopping presented a learning opportunity, where she could watch us compare prices, use coupons and check out.

We often brought along money from her piggy bank so she could spend it on something she wanted. It was a real “aha” moment when she realized that money has value rather than thinking it comes from the clouds. These occasions allowed us to have an impactful wants-vs.-needs conversation.

Age 6-10: Chores, Allowance, More Shopping

For many kids, this is a good age for assigning chores and giving allowance. Sadie didn’t respond well to this approach so we’ve discarded the payment-for-services-rendered arrangement, and instead assigned some things she is responsible for, like cleaning up after her guinea pig and straightening up her room, and asking for her help with other tasks, like vacuuming and dusting. There is no allowance. She receives plenty of spending money from relatives for her birthday, Easter, etc., and she can spend that money as she sees fit. We buy her things occasionally, but more often than not, she spends her own money, and therefore, makes very thoughtful financial decisions.

Age 10-14: Checking Account, Debit Card, Saving vs. Spending

This is right around the corner for us, so I’ll tell you what we plan to do (which, given our child, could change). I assume Sadie will start earning her own money from babysitting or odd jobs soon enough, so when that time comes we’ll set up a checking account with a debit card so she can learn to balance a checkbook and get comfortable with the debit experience. She’s been begging for a phone and when we do finally break down and get one for her, we plan to have her contribute to the bill and pay by check or debit card.

Age 14 & Up: Independent Shopping, Credit Card

She will have more of her own money by now (I hope) and she’ll be without us more (eek!) so she’ll be spending more independently. We also plan to open a credit card account for her at this age so she can see how credit works.

For bigger ticket items that she wants, like a tablet or, eventually, a used car (double eek!), she can save for a portion and then charge a portion and pay it off.

This will also be the time we’ll talk about the importance of building good credit and why it’s important to track her credit score (you can get your free credit scores, updated for free each month on Credit.com), plus checking her annual credit reports.

Also, around 16 or 17, we’ll talk about college—how much it will cost, how much is in her 529 college savings plan, how student loans work, etc.

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