Starting Early with Credit Card Responsibility

by Mama Chocolate on May 4, 2013

To a new parent, it might seem a little early to start thinking about getting your child a credit card. But the fact is, even before your child was born, you were bombarded with information about infant life insurance, section 529 college savings plans, and other financial services. It is clear that it is never too early to start thinking about your child’s financial future.

As of this writing, the average household credit card debt is $15,956 and the average interest rate is 12.78 percent.

Additionally, a lot of people carry a balance from month-to-month, and only pay the minimum amount due. By paying this way, it could take more than ten years to zero out the balance, and they will have paid thousands of dollars in interest.

Teaching your kids credit card responsibility when they are young can help them avoid many of the common credit traps.

I’m not suggesting that you sign them up for a gold card the minute they are old enough to operate the telephone – that could be a recipe for disaster – but you can use a pre-paid credit card.

Some companies allow you to create an online account and provide a debit card that you can use to access your funds. You can deposit money to the account via a bank account, with check deposits, or even fund the accounts using a debit card.

When your child is old enough to receive an allowance, or to earn money doing chores, rather than give him cash, deposit the money onto the card. As he gets older, he can also have his paycheck deposited to the account via direct deposit.

There are several advantages to using a pre-paid account over the usual bank account-linked debit card, or credit card. This is where professional financial advice regarding credit card comparison comes into play.

To break it down: there is no interest on purchases or cash withdrawals. This is because you are only spending from the money that you have deposited, not borrowing from the bank. But the card acts just like a credit card, so your child gets the convenience of a credit card without you having to search credit cards with the best interest rates.

Some cards have an option where you can set daily spending and cash withdrawal limits. Your child can only spend as much as you allow, or as is in the account. You can even freeze the account if your child abuses it.

It protects your credit. If you get your child an actual credit card, you will most likely have to cosign, or issue a secondary card from your existing credit account. This means you are partially responsible for any debt she incurs with that card. With a prepaid card, she is only spending money that is loaded on the card, not borrowing money from the bank. If she goes nuts and makes a large purchase, you won’t be stuck paying it off, plus interest, for years to come.

Fewer fees. Depending on the provider, you won’t have monthly account fees like you can with some bank accounts. The card will also not allow you to spend more than is available, so you are not likely to incur overdraft fees. Some cards do charge an ATM fee, or fees for making deposits to the card with a debit card, but many don’t charge you fees to keep the account open.

If you child is still an infant, the credit card years are still a ways off. But, thinking about your options now will give you a clearer idea of what to do when the time comes.


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