In this day and age, it seems that everyone uses credit cards for everything. For us adults, it makes sense because of the rewards and benefits, but is giving plastic to a minor the best choice? Let’s weigh the benefits and drawbacks.
Safer than cash – If cash is lost or stolen you (or your kid) is out of luck. With credit cards, you will be legally protected against unauthorized charges. By federal law the most you can be held accountable for is $50 but most credit cards don’t even charge that and instead, give you zero liability.
Know where the money is being spent – When it comes to cash, you have to take your kid’s word for how it is spent. One benefit of a minor using a credit card is that their spending can be broken down by transaction – you as the parent or guardian can see which stores and merchants your teen is spending money at. Most creditors will even allow you to track spending by category, too.
Limits to control spending – With prepaid credit cards for minors, they will only be able to spend up to whatever the balance is on the account. With regular credit cards, you can get a secondary card issued in the minor’s name and set a spending limit on it (i.e. $200 per month).
Analyze historical spending – To say a credit card can be a budgeting tool may seem like an oxymoron, but it’s true in this circumstance. By having detailing monthly breakdowns of spending, you and your teen can sit down and compare, for example, how much he or she spent eating out this month compared to last month.
Might earn you rewards – I don’t know of any prepaid cards that offer rewards. Some debit cards do but their rebates are dismal. However if you get a second card for a minor under your own credit card account, then you will be earning rewards for their spending.
Additional benefits – If the credit card for a minor is a secondary card under your own account, then they likely will be eligible for all the benefits that you enjoy (with exception of benefits that are only applicable to adults, like car rental coverage). Some credit cards include free protection for stolen/damaged items for 90 days from purchase, free extended warranty on eligible purchases and more.
Might cost money – One of the biggest drawbacks is the cost factor. Prepaid credit cards for minors (as well as adults) almost always involve fees of some sort. On the other hand, debit cards linked to a bank account may be free. If your own credit card is free then adding a secondary card usually is free, too.
Not a foolproof way to monitor spending – Without a doubt, credit cards offer much better oversight than cash, but they are certainly not foolproof. For example, you may see a charge for Wal-Mart or a grocery store but you won’t know what the minor actually purchased there, unless you require them to save their receipts to show you.
Might be a negative influence – If you aren’t strict with teaching your child/teen how credit cards work, then they could get carried away with it. If you have a spending limit in place then the damage that could be done will of course be limited, but having that limit is not a substitute for teaching them money management and budgeting.
Overall, if managed in a very hands on way by the adult, I think credit cards for minors are not a bad idea. It seems to me the benefits definitely outweigh the drawbacks. But if you choose to go this route, I would strongly suggest starting the kid out with a very low limit. Over time, if they use it responsibly you can reward them by increasing the limit (which is a good way to reinforce positive budgeting skills).
What are the best credit cards for parents to use?
How do you like your current credit card? Do you think it’s good enough for your kid to use as secondary cardholder? You may want to consider other options, depending on what you are looking for.