Has your trend-loving teen noticed the widening use of plastic when they go out with friends? After all, seven years ago 31% of people paid for consumer purchases in cash, while 18% used a credit card. Fast forward to 2022, and these stats swapped – individuals spent cash for 18% of shopping exchanges, and credit cards a whopping 31%, or nearly a third, of the time.
So you may be considering whether, and, if so at what age, to get your teen a credit card.
Overview of Credit Cards for Teens Today
Before the Credit Card Act of 2009 passed, college students were often inundated by free gifts in exchange for an application. Many quickly got in trouble.
Now, students can’t be offered a prize for sign-up, and those 21 and younger need a co-signer or proof of income. Nonetheless, 67% of college students possess a credit card in their own name, and of these nearly half have credit card debt.
Instead, consider adding your teen as an authorized user on your account to create a card in their name. First, think through their ability to stay organized and to respect limits. Regardless of how responsible they are, design mechanisms to protect your own credit score and to remove the privilege should things go south.
After all, as financial expert Yanely Espinal said, “One late payment, one missed due date or one mistake can put a stain on your credit report for years.”
You Know Your Teen Best
Espinal contrasted two examples of young people with different styles and organizational skills.
One struggles to get assignments turned in at school, forgets the dates of upcoming events and relies on friends to clue her in about what she may be missing.
Friends rely on the other, who has checked out the best apps for tracking due dates, gets started right away on long-term projects, and has never missed a deadline.
Most teens fall in between these two, but adding credit card balance discussions and due dates to the less organized one’s plate may overwhelm them further.
Since you control the account, you control the card. One of your kids might do best having you hold the actual card, exchanging their cash or allowance for an online purchase now and then. Another might be given the privilege of full access, but still with clear limits and parental follow-ups.
Or you might reasonably decide to wait on cards altogether until your kids are ready to shoulder full responsibility for the results.
Why Teens Should Have Credit Cards
Adding your teen as an authorized user on your account gifts them your credit score. It’s a type of generational wealth transfer since higher credit scores mean easier access to credit at a lower cost for them later.
Espinal suggests that you, “Add them as an authorized user on your first credit card…that’s the one that has the longest history of making payments and the longest age of credit…which is 15% of your credit score.” This also protects your teen, since when you do this, “They do not have to have any hard inquiries on their credit score.”
Give Hands-On Experience Using Credit
Espinal points to the oversight parents can provide. Some cards allow you to set up a separate credit limit for the authorized user. Other cards rely on you creating a rule for the total charges by your teen.
Either way, having a small amount of credit and specific expectations for how it will be used provides a lower ledge for them to climb upon initially. You’ll be there to talk it through, and to limit the damages, should they fall.
Build Their Credit Score
Though Espinal frowns upon handing a child younger than 16 a credit card, older teens and up can get started building the credit they may later need. Apartment applications, for example, often ask to pull a credit report. Higher credit scores equal lower car payments. Years of on-time payments could translate, later on, to qualifying for a first home mortgage.
As Espinal emphasized, for credit scores, “If you’re always making on-time payments for ten years, that’s much better than making on-time payments every month for one year.”
You Can See What They Buy
Making them an authorized user of your card means you’ll have access to your teen’s detailed spending. Conversations about money and priorities may flow more easily as a result.
Unlike a debit card, you can challenge a fraudulent credit card charge. If the issuer decides it was valid, though, you’ll have to pay it along with any interest during the dispute time period. If it turns out that your teen actually made the purchase in question, that could be a problem.
Teens Should Have Credit Cards — with Guardrails
There’s a reason credit card companies invest in touchless technology, advertise heavily, and give rewards for using their card. Reduced spending friction and the allure of brand building and bonuses act to reinforce the connection between spending and good feelings.
As a parent, you must set up different lessons – ones of responsible use and paying bills, on time and in full. Instead of reinforcing the fantasy of getting something for nothing, you can teach your kids about the high-interest rates and fees that accompany paying only the monthly minimum on a credit card balance.
Are You Giving Them Access to Your Entire Credit Limit?
Some issuers give the primary cardholder freedom to designate the credit limit for each authorized user. Others give all users access to the entire limit.
Let’s say your account stops you from spending above $10,000 in total. Though you might tell your teen they are limited to $100, unless the bank formally creates this separate limit, you could be left holding a very large bill.
Do You Have a Mechanism for Payment?
If you pay off the balance monthly, your credit card fits into a smart financial plan. If you don’t, you’ll pay high interest and fees on your kid’s shopping in addition to your own.
Decide how you want your teen to use the card. Do you plan to use it for their monthly allowance, only on special occasions, or with permission for online purchases? Each of these comes with the need to have a mechanism to set a limit on their purchases and any reimbursements, and a way to follow through if they abuse this.
Shopping with Credit Amps the Release of Feel Good Chemicals in the Brain
Credit feels different than cash or debit cards. Numerous studies show that people spend more when using plastic versus cash. The further away from the pain of actually paying for something, the more our brain tells us that it’s not real money. MIT researchers actually found that credit cards motivate spending by exploiting reward networks in the brain.
Teens experience impulse-control challenges. Their prefrontal cortex, the executive functioning portion of the brain, matures fully well into their twenties. Until then, adolescents tend to prioritize now over the foggy future and crave risk-taking as they try to fit in with peers.
Think Through the Lesson You Are Teaching
Reconsider quietly monitoring and paying for anything charged to your kid’s card. Instead, teach them that responsible credit card use means paying the balance off monthly, and involve them in this process. Otherwise, you could inadvertently teach them that shopping carries no consequences. This fallacy may last into stages in your child’s life when it becomes a more serious problem.
For example, Yanely Espinal became a financial expert to help others avoid her own early challenges. She started buying things she couldn’t really afford when starting college and qualifying for a brand-new credit card.
She explained that, “I never missed a minimum payment, but the minimum payment is not enough to get you out of debt, so the interest kept accruing and by the time I graduated from college I had over $20,000 of credit card debt.”
Set Your Teen Up for Success
Don’t put credit cards before core financial lessons. Communicate to your kids the aspects of your family budget that apply to them and their spending.
Interestingly, a current TikTok trend revisits an old-school budgeting approach: cash stuffing. Making an envelope for each budget category and only using the cash you’ve placed in it provides self-imposed boundaries. Cash-only means you can’t spend what you don’t have. Both are great lessons for life.
Frequently Asked Questions: Should Teens Have Credit Cards
Should I get my 18-year-old a credit card?
Responsible, older teens who may be looking to live away from home after high school make good candidates for a limited-use credit card. You may require repayment from their part-time job for any purchases up to an agreed-upon amount per month. They could keep the use of this card as college expenses loom, but be clear and have an exit plan.
What about my 16-year-old?
As kids get a driver’s license, you may want them to have ready gas or emergency credit available. Start small, and test out their choices. Review charges monthly with them, and reconcile your part with theirs monthly.
My friend got her 12-year-old (or younger!) kid a credit card. Good idea?
Preteens, and certainly even younger children, should be learning the value of cash, or at most a debit card. Later financial learnings depend on understanding the nuts and bolts of money.
Also, as Espinal pointed out, “One out of four children under the age of sixteen are actually victims of identity theft.” This is in part because parents established credit in their name. At younger ages, cards represent little upside and clear risks.
Starting with a bank account with a debit card option could be a better starting point. Here's how to open a kid's bank account with Ally.
Final Thoughts on Should Teens Have Credit Cards?
When it comes to deciding which financial tools are right for your teen, there isn't a one-size-fits-all answer. Instead, you'll want to weigh the pros and cons of credit cards.
Additionally, you'll want to consider what you already know about your child. Think about their personality, their organizational style, and other habits and traits that might make credit cards beneficial or not.
With proper guardrails in place, credit cards can be a helpful tool for teens as they learn to navigate and manage money in young adulthood. Of course, just as there are some adults who prefer to go without credit cards, that's always an option for your teen too!
Should teens have credit cards? Where do you stand on this topic?
Please let us know in the comments below.