A group of kids walk into a coffee shop. “I’m buying today,” one of them tells her friends as she takes out her credit card.
It’s a scene that Suzanne Antonelli, a certified financial planner and wealth advisor at Antonelli Financial Advisors in Grosse Pointe, witnesses on a regular basis.
“I’ve seen it 100 times and I just cringe every time I see it,” she says. “‘It’s my treat today.’ Really it’s your parents’ treat. Money isn’t even real to them. By giving them that credit card, they don’t even understand.”
Antonelli’s experience goes along with what seems to be a national trend. According to the latest T. Rowe Price survey, almost one in five parents are giving their 8- to 14-year-olds a credit card, The Penny Hoarder reports.
That number – 18 percent – is up from 11 percent in 2015 and four percent in 2012, meaning earlier access to credit cards is becoming increasingly common.
“Quite frankly, it scares me,” Antonelli says. “Giving them unlimited access to unlimited funds is telling them all the wrong things.”
The right age
The appropriate age to introduce a credit card may be different for every family, but a good rule of thumb is when the child will be out on his own and could need funds in an emergency.
“Typically I advise parents when your children are driving,” Antonelli suggests. “Any child who is going to be away from home or drives should have a credit card – with restrictions.”
Those restrictions are key. For example, you can set a daily limit on the credit card.
“My kids all had a credit card when they turned 16,” she says, but it didn’t come without strings. “They earned that credit card by going grocery shopping for me and buying what was on the list and starting to understand what things cost.”
Once you give your child a credit card, be prepared for some hiccups along the way. Teens may be surprised how quickly their lattes and lunches add up.
To help avoid problems, “don’t just blindly pay the bill,” Antonelli advises.
“They should see it,” she says. “There should be an accounting every month to see what they spent.”
A gradual start
“Kids should eventually have a credit card, but they should know how to responsibly use them,” she says.
That process began for Marshall’s daughter at age 13, when they went to the bank together to open her daughter a “high school checking account” where her weekly allowance would be sent.
“It’s essentially a checking account with a card attached,” she explains. “It is primarily a debit card, but has a credit card option.”
Her daughter has learned to check the account balance before making purchases.
“This also opens the door for the conversation about needs vs. wants,” Marshall says, noting that they haven’t yet utilized the credit option on the card. “We reviewed how the card works and what happens if there is an overdraft – in our situation, it’s a $34 overdraft fee each time it happens. So far, we haven’t had any fees.”
As you prepare for the time when your child will have a credit card, make sure to have conversations as a family about using credit wisely.
“[Credit cards] are used for purchases that will be paid off over time, and hopefully we teach our kids to borrow money for things that appreciate in value,” Marshall says. “Don’t put ice cream, Starbucks and Chipotle on a credit card, if you can’t pay it off at the end of the month.”
Taking the plunge
When you’re ready to get your child a credit card, review how it works with your child – including going over interest charges, penalties and making payments.
“Start with a card with a low credit limit,” Marshall advises. “If he or she can handle that, then maybe the limit can be increased. Don’t be afraid to take the card away if they are irresponsible. Debt is toxic, and the sooner we teach our kids good habits, the better.”
Set up a time to review transactions with your child and encourage a discussion about whether purchases were “worth it” or not.
And beware of the college years and the credit card offers that often come rolling in all at once for teens.
“The credit card companies are eager for new customers, and often bombard students with new card offers,” which can lead to big problems fast, Marshall notes.
And, importantly, set a good example for your kids.
“Being a role model is one of our most important jobs as parents,” she emphasizes. “If we have good habits, we hope they learn them from us. Make sure you are using credit the right way in your life. It can be a good motivator to clean up your own act before you get them started.”
More money tips
Before the question of credit cards even comes up, help kids learn the value of money by giving them their allowance in cash and letting them spend it in person at a store, Antonelli recommends.
“I think kids need to have real money in their hands and see it go away,” she says, suggesting the longstanding “envelope system” using cash that has helped many families budget over the years. “You’ve got to let them see it go away.”
Many of her clients also help teach their kids or grandkids about the value of money by giving them a check for $50 or so as a gift and letting them choose where to donate it. “The kids are supposed to find their favorite charity to give to and then they have to explain why they chose that charity. Not only are they learning the value of money, they’re also learning the value of giving back. It has worked beautifully for a lot of my clients, and the grandkids have fun with it.”