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It's common to hear stories of college students who got their first credit card and went wild, not understanding the realities of interest and debt. With few schools covering financial literacy, parents play an important role in equipping their kids with financial knowledge and healthy habits.
Even before your kids are old enough for their own credit card, it's beneficial to teach them how to use one responsibly. By educating them on how credit cards work and providing guidance on building credit and avoiding debt, they'll have a head start in adulthood.
6 Ways to Teach Your Kids About Using Credit Cards
While you don't want your child going wild with your personal credit card, teaching the basics of credit cards early on—and possibly giving them access to one—can help them become financially responsible. Here are some ways to start educating them young.
1. Explain How Credit Cards Work
We all had to learn credit card basics at some point (perhaps the hard way) and might take that knowledge for granted. Give your kids an advantage by explaining the essentials of how credit cards work, including minimum payments, interest, fees and credit limits. They need to understand that it's a form of borrowing—one that can be expensive with sizable debt.
2. Emphasize Buying Only What You Can Afford
When young people see adults swipe a piece of plastic, it can look like play money. It's crucial to stress to your kids that, while credit cards might have hefty limits and are easy to use, it's not free money. It may sound obvious, but studies show people spend more with credit cards than cash. The money doesn't feel as real, and some may be lured by rewards to spend beyond their means and more impulsively.
So explain how credit cards can be used for everyday purchases if the goal is to build credit or earn rewards—and that paying off your balances each month is important. This is a good time to teach your kids about budgeting and living within your means.
3. Practice Using a Card Together
Lecturing only goes so far. To help both you and your child feel more confident about giving them access to a credit card, go on some practice runs together. For example, take them grocery shopping with you, talk through your budget and have them make the payment with the credit card to see how the process works.
4. Teach Them How Payments Work
To make the connection that spending with a card is real money, cover how payments work. Share how monthly minimum payments are required if you carry a balance, and how paying only the minimum can prolong debt. It can help to emphasize how overspending and carrying a balance means paying interest fees, which can over time make the cost far more expensive than the original purchase. If you do a practice run with your kid, like the grocery store example, it could be helpful to later show them how it appears on the statement and how you pay the bill (and where that money is coming from) to bring it full circle.
5. Explain Consequences of Irresponsible Card Usage
Beyond teaching the essentials and benefits of credit cards, it's important to explain the risks. This includes how carrying a balance means paying interest, and how making late payments results in fees. They should understand why they need to build a strong credit history, so review factors that hurt credit scores, like carrying large balances, paying bills late or going into default.
6. Instill Other Healthy Habits
If your child doesn't have a savings or checking account, this is a great time to set them up and teach how those work too. Think about other financial skills you take for granted that your child could learn from you, especially as they near graduation. Perhaps how to use an ATM, how to pay utility bills and how to avoid predatory loans.
At What Age Should I Get My Kid a Credit Card?
Starting your child with a savings and/or checking account from an early age has minimal risk, but not every teen is prepared for the greater responsibility and long-term consequences of credit cards.
Young consumers can't legally get a credit card on their own until age 18, and not until 21 unless they can prove they have sufficient income to make payments.
However, parents can add their minor children as authorized users on their credit card accounts if they feel they're ready. The child will receive a credit card linked to their parent's account. Some, but not all, credit card issuers have age minimums for authorized users. Depending on the issuer, being an authorized user can help your child start building their credit.
Whether your child should get access to a credit card is up to your discretion, and maturity is more important than their actual age. Consider if you think they're ready to be financially responsible and fully understand how their actions can hurt not just theirs, but your credit and finances.
How to Manage an Authorized-User Card
Communication is key, so ensure your child understands how credit cards work before handing one over. It may help to establish rules around their usage—for example, allowing use for emergencies only, or restricting it to only certain types of purchases, like food and gas.
Since they will be an authorized user on your account, you'll see all of their purchases. You'll be able to monitor their activity and have a talk (or take away the card) if you determine they aren't really ready.
It's also important to discuss who's in charge of paying the bill and if your child is on the hook for paying you back for their purchases. Consider having regular check-ins to review statements together and reinforce healthy habits.
Which Credit Card Should My Kid Get?
Prior to age 18, your only option is to add your child to your credit card as an authorized user. Once they reach 18, they can legally get their own card, but it's difficult to get approved without credit history or income to show lenders they're ready. Whether they have any credit yet will depend on if your card issuer reports authorized user activity to the credit bureaus.
One option for those 18 years and older who haven't built credit yet is a secured credit card. These function like traditional unsecured credit cards and are intended to serve as a low-risk way to build credit history. They require a deposit that's usually equal to your credit line, which serves as collateral to secure it. Typically, you can choose an amount between $200 and $2,000 depending on how big of a deposit you want to make. After a certain period of responsible use, the account holder may build enough credit to qualify for a standard unsecured credit card, either from that card issuer or another.
Other starter credit cards include unsecured cards for those with limited credit history. Interest rates on these cards can be high, so ensure your child doesn't carry a balance if they get one. The goal should be to make purchases they can afford (ideally everyday purchases they'd be making anyway) and pay the bill off quickly, before interest is charged.
If your child goes to college, they may be able to qualify for a student credit card in their own name, though they may need to have some income.
The Bottom Line
You already have a lot on your plate as a parent, but equipping your children with basic financial literacy—especially when it comes to credit cards—will serve them well for the rest of their lives.
If you believe your child is mature enough, adding them as an authorized user to your credit card can be the best way to transition them to eventually having their own. Not every kid is ready at the same time, and if they make poor decisions as an authorized user, it could hurt your finances and credit. Whether they're mature enough for a card or not, there are many other ways to educate and model responsible choices. Don't hesitate to include your kid in even mundane tasks, helping them learn by watching you do things like check your free credit report on Experian, paying bills or budgeting for the month ahead.