If the thought of your 18-year-old on the loose with plastic in hand terrifies you, you likely share the sentiment of many parents in the same situation.
Lawmakers seem to agree as well, which is probably why the Credit CARD Act of 2009 has made it much harder for young adults age 18 to 20 to obtain their own credit card.
Under this new act, anyone under the age of 21 has to meet a few extra requirements before being granted a line of credit. They either have to either prove their income is high enough to pay off the bill or have someone over the age of 21 with sufficient income and credit co-sign (i.e. Mom or Dad).
This is where you come in. Unless you were blessed with an especially ambitious and hardworking teen, it’s doubtful your child is raking in the salary needed to qualify for his or her own card. If they want credit, you have the power to acquiesce or deny their request.
Does An 18-Year-Old Really Need a Credit Card?
You may be thinking, “Why on Earth would I let my kid have a credit card?” Everyone would be better off if your son or daughter waited until they were 21 to start using credit cards, right?
That’s actually probably true. It’s one thing if your child can qualify for a card on their own; good for them. If, however, their income does not meet the standard that creditors deem as satisfactory for handling the expense, they have no business owning one and you don’t have to let them have one.
How Do Young Adults Build Credit?
The purpose of the new laws outlined in the CARD Act is to protect this age group from overly aggressive marketing of credit cards to teens without a job to back up the subsequent bills. This scenario only leads to a mound of debt.
What, then, can a late teen or early 20s person do to establish a credit history and build a foundation for good credit in the future? Credit cards are not the only answer to this question. There are a host of other ways to build credit, such as being added as an authorized user to your credit card (without actually having access to it) or having loans for school taken out in the student’s name.
When it comes to kids and credit, it’s like the legal drinking age: It’s hoped that by waiting a few more years before giving young adults access to booze, they’ll handle the responsibility with a little more discipline and grace. Well, we all know how that goes.
Your child will eventually have to include a credit card as a part of their finances, so the sooner you can educate them about proper usage, the likelier it will be that they demonstrate self-control once the time comes. That doesn’t mean you should introduce them to credit card usage at an early age. The best you can do is lead by example and hope for the best when they turn 21.
So if you feel your son or daughter lacks the maturity and/or financial stability to handle their own card and are uncomfortable with the idea of helping them get one, don’t do it. Chances are, your kid really doesn’t deserve (or need) a credit card yet.
Money Reasons says
Sounds like a great law. While I plan to raise my kids to be financially savvy, credit cards are always a risk at that young of an age!
I remember my Dad telling me to be careful with credit cards and not let myself get into debt. I said “oh yeah, of course.” Fast forward a few years and I’m in credit card debt. Not that there aren’t those who can be responsible but it can be tough fighting off the freedom of a line of credit.
Mike Piper says
Our parents gave us each a copy of their credit card when we turned 16. There was an accompanying sit-down chat explaining how credit cards work, what they’re for, the explicit rules for using our parents’ card, and exactly what kind of trouble we’d be in if we broke them.
(The idea was that we could use it for an emergency or if they asked us to use it for something — i.e., ordering a pizza so it’d be there once everybody got home from work.)
Worked out pretty well. None of the three of us ever got ourselves into a dime of credit card debt.
If I ever have kids, I’ll be doing the same thing (as long as it’s legal…).
Sounds like your folks did it right Mike! I don’t think most kids get that type of sit-down when they get a credit card.
Great topic! I am curious why do you think that “Your child will eventually have to include a credit card as a part of their finances?” I would argue that a better approach would be to teach your children to live within (or below) their means. I have seen countless people talk about the debt that they’ve incurred over the years because of credit cards. Most people know that debt is bad but can’t resist the instant gratification that comes with the ability to buy now, pay later. By choosing to model a debt-free lifrstyle, that urge can not be acted upon. Most kids are leaving school with large student loans. To add credit card debt to the mix really puts them at a huge disadvantage in managing cash flow.
Jim – Why do you think adding a credit card to one’s finances means not living below one’s means? Credit cards aren’t bad. People just need to learn how they work and understand the repercussions of their purchases.
That said, some kids aren’t ready for a credit card while some can handle the responsibility.
I agree that credit cards are neither good nor bad. The problem is the behavior of the people using them. With that said, most student’s ability to manage credit cards properly – i.e. pay them off in full each month – is lacking. According to an April 2009 Sallie Mae report, the average credit card balance for college students was $3,173. 85% of freshmen carried a balance and graduating seniors carried a balance in excess of $4,100. Combined with student loans, these young adults are starting their working careers with limited cash flow due to their debt obligations.
Many college students are living on a low income during their school years. I think that the learning experience of living within the money on hand far outweighs the ability to establish credit. If these students are successful in living this way in college, they will be better prepared to manage their finances better upon graduation, in my opinion. After all, the first job out of college results in them making a much higher income than they have ever achieved before.
I think this is a great discussion and thank you for posting it for us.
The key is preparing your child for that credit card. That’s my goal with my 3 kids. Teaching them how to budget and saving for items. Not to use credit cards to live beyond their means. I would expect that my children will have credit cards when they are old enough, but to be wise enough to pay it off monthly.
I plan to make sure my kids understand credit cards and how they work. I think having a credit card at some point is mostly inevitable. The kids need to learn early on what credit is all about.
That’s a tough question. Maybe a better question is “is your kid ready for a credit card”? Credit cards don’t come with common sense instructions on how to use them, so giving one to a kid who doesn’t realize what credit really could lead to a lifetime of trouble.
It is a hard question. But if your child doesn’t really need one then I think it makes the question easier to answer.
At the risk of sounding like a hardliner, which I probably am, what does it teach a person of any age when they are incurring debt but don’t have the means to pay for it? I think it much better to first teach and allow people to earn, budget, save and spend (and bear the consequences if necessary). It is better they can master these skills before having a family and children. Borrowing is easy, all you have to do is sign your name on the bottom line or convince someone to give you money.
Agreed. And I think this goes for all of us – we need to understand what credit is and learn to use it responsibly. We need to make sure that we have the means to pay off what we charge. As parents, we teach our children every day in the actions we make and we need to be aware of this.
I’m for responsible young adults getting credit cards at 18. I did. Granted I got a credit card when I turned 18 before the Credit Card Act. There are lots of things to take into consideration. I went to college out of state and if there had been a family emergency and I needed to book a plane ticket that day, I don’t think I would have been able to had it not been for a credit card..
Glen Craig says
That’s a good point. Having one for a circumstance such as that makes sense. But how many get their first credit card and use it instead to decorate their dorm or get the latest iPod (nothing wrong with that if you can afford it)?
Options for parents include signing a child onto their account, having their child get a secured card, and working with debit cards and transferring money as necessary.
As a parent, I think its great to have conditions attached to whether or not my child has a credit card at the age of 18. After all, many people who are in debt today started acquiring it back in college – when credit cards were heavily marketed to students and given out freely.
And that’s the whole point of the new legislation. I have to wonder how much that credit really costs a student who comes out of college with credit card debt?
Joe Plemon says
The post was written with the assumption that everyone will eventually have a credit card. Not necessarily so. My wife and I don’t have credit cards, nor do any of our four adult children. We might be oddballs, but we somehow survive. And we all somehow have good credit ratings.
Hmm, perhaps it was. I think the average family in the U.S. has some sort of credit card though (I’m saying this without any data to back it up, just gut instinct).
Still, it is good to know you don’t need to have a credit card to have a good credit score or to get by.
Sean Browne says
I remember when I got my first credit card. I barely turned 18 and I had a few companies throw me offers on credit lines. If only I knew what I know now. Getting a credit card at the age of 18 really hurt my credit score. Of course like most young adults, I did not really think of credit scores etc. So i racked up a hefty bill and never got around to paying it off because I didn’t even have a job. Now that I look back, I’m very surprised to see that credit card companies issued me credit without even having a job. The way I looked at it at that age was free money. But now of course down the line and 10 years later that bad choices I made still hang over my credit score. Of course these days I am a lot more responsible about my credit cards but it took some time before I could get a few issued to me. This might be a good thing to raise the requirement age to 21 for a line of credit. But what about those parents who co-sign for their children that want to purposely take out extra credit for themselves? I’ve known some parents who have done that with their children to get loans from banks. I know, it’ real shady but it’s the truth. And if I have heard stories about this happening to good friends of mine and their parents, what wouldn’t stop others from doing the same thing, while they tarnish their children’s future for credit.
It does seem a strange thing to be offered credit without proving income, doesn’t it? I think the new Credit Card act will go a long way in changing that.
As for parents who piggyback their children’s credit – well, I can only hope they pay their bills on time. If they do it would help the child’s credit score. If they don’t pay and spend responsibly, then yes, that seems like a real shady way of doing things.
Sandy @ yesiamcheap says
I don’t think that college kids need a credit card. It’s hard to begin life with both college loans AND credit card debts. The debts that I had from college haunted me for about 6 years.
I think it depends on the person. But most probably don’t NEED it. Your story is probably quite common. I had a friend who, when he got his first card in college, went right out and pretty much doubled his CD collected without a second thought. Not sure if he was even working. I bet that type of spending happens a lot.
Money Funk says
Not mine! He already uses his savings to overdraft his checking! No way. Not responsible enough.
That sounds like a good test for a child – can you first handle a checking account without incurring fees?
Khaleef @ KNS Financial says
I am definitely in favor of training kids to properly use credit. But it would start with them sitting down with me while I got over the budget and make certain financial decisions. Then it would grow from there depending on other circumstances.
Sounds like a good start. Too often I use the credit card in front of the kids but I need to spend more time making sure they understand what it really represents.
The Financial Blogger says
I think you should get a credit card as early as possible. I got my first credit card at the age of 18 and it helps me manage my budget and my credit at the same time.
While the limit was not astronomic ($500), it was enough for me to use it whithout going sideways if I couldn’t control my spending temper ;-). More seriously, sine the age of 18, I have a golden rule; do whatever you want with your credit card, but you have to pay it in full at the end of the month.
11 years later, I still don’t pay interest rate on my credit card but I get all the points and reward I can in the meantime!
Sounds like you were more responsible than most. Good to hear there are stories out there where credit cards aren’t leading to debt.
Adam - Magical Penny says
I didn’t get a credit card until I was 22! (I’m 24 now)
There simply wasn’t a *need* for one-everyone knows spending money you don’t have is bad right? I could do almost everything I needed to do with a debit card (except book some flights that I used my parent’s card for and then paid them back in cash straight away).
I ended up getting a credit card to ‘build credit’ although I’m still not fully convinced it’s really necessary. I think America must have more of a credit card culture than the UK.
We certainly do have a credit culture. I think it’s a big part of what our financial crisis was all about – spending more than we have or can afford.
We have a rule at our house. “No credit cards”. With 3 in college and one on her own we have taught that you live on what you make and pay cash. The oldest did not listen and is now in default of 5 credit cards. Another got a credit card and now sees it is point less. We all are brainwashed in this country that we can’t live with out credit cards. I’m not buying it.
Joe Plemon says
I agree with the brainwashing statement. I wonder what industry has done the brainwashing…hmmmm.
It’s not just the credit card industry that wants us to spend more than we have. Look at housing. Look at the way the country looks at GDP. If we aren’t spending we aren’t producing and that’s not good, well at least in the eyes of some. We need to get to a more solid ground where people only spend what they have.
Ashley R. says
I don’t think High Schoolers should be given credit cards just yet. If they have a job and their parents to backfall on, why would they need one? Once they hit the real world or college, then I think a credit card would be crucial to help cover the overwhelming amount of expenses. We don’t want our youth to be damaging their credit unknowingly and at such a young age.
A credit card doesn’t always mean on their own – a parent can put a child on their account. But I agree that most high schoolers probably don’t need a credit card.