How Should Parents Teach Teens About Credit Cards?

By Nancy Trejos
Sunday, January 11, 2009

Shashi Bellamkonda would like his 16-year-old daughter to get a credit card as soon as she is eligible.

Okay, that might sound kind of dangerous considering how much we have heard about teenagers (and let's face it, adults) getting into trouble with credit cards. Aren't there members of Congress who want to ban credit card companies from marketing to college students and young people in general? (The answer is yes.)

Bellamkonda, a 45-year-old Potomac resident who devises social media strategy for a company in Reston, understands that. But he considers his daughter Mitali, a high school junior with good grades, responsible enough to handle credit. And he wants her to establish a credit history. After all, aren't we all supposed to take on a little bit of debt early in our lives in order to qualify for that good debt, such as a mortgage, later on in life?

There's another reason Bellamkonda wants his daughter to have a credit card. He wants it to be a learning experience. She's young enough now that if she has access to a credit card, he can monitor it. He'd rather she not have her first experience with credit when she is far away or living alone.

"Youngsters need to know that this is not a bottomless pit. So this may help educate her," he said. "Our prime focus should be on teaching children how to work with these various instruments."

If she makes mistakes, so be it, he said. "I'm not saying I want her to make mistakes, but if she does, it would be a good experience because we will be there to help her," he said.

Bellamkonda is wondering: Is this a good strategy? How should parents go about teaching their children about credit cards? Can his daughter even get a credit card? If so, would he be able to monitor the balance?

The credit card experts I consulted applauded Bellamkonda for teaching his daughter financial literacy early in life. Emily Peters, a personal finance expert for Credit.com, points to a 2007 Charles Schwab survey that showed that only 45 percent of teens know how to use a credit card. Even worse, just 26 percent of teens understood credit card interest and fees. "Shashi's doing the right thing by making sure she'll be prepared for her credit future," Peters said.

But there are a few things Bellamkonda should consider before letting his daughter enter credit territory.

First of all, she might not even be able to get her own credit card. The recession has made financial institutions squeamish about giving unsecured loans, which is what credit cards are, to people with no established credit history. If she is able to get a credit card, he would probably have to be a co-signer, which means that if she mismanages the account, his credit score would be damaged along with hers.

Many personal finance experts would urge against letting your children get their own credit cards until they have a job that allows them to pay off their balances. Some even say they should wait until after college.

In the meantime, Bellamkonda has other, much better, options. If the goal is to get her used to dealing with plastic rather than cash, he can get her a debit card or a prepaid card with a low limit, say $250. Curtis Arnold, founder of CardRatings.com, said there are prepaid cards targeted specifically at teens, such as the Visa Buxx card. With such a card, Bellamkonda would be able to log in and monitor his daughter's spending online, Arnold said.


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