Nearly one-third of soon-to-be college graduates are already carrying credit card debt, so it’s natural for parents to wonder if it’s a good idea to send kids off to school with a card in hand.1 The answer? It depends on the child, especially since children under 21 will typically need to be an authorized user on their parents’ account to have access to a card.2
Authorized users will have purchasing power, but are not responsible for payments in the eyes of the bank or card issuer.3 An alternative is to act as a cosigner and share equal responsibility for the debt. It is up to the parent’s discretion what option, if any, is best for their kids.
Catalina Alfonso, vice president and product development manager for SunTrust, offered her insights on equipping your child with access to credit before they join the full-time workforce.
What do kids need to know about money in general before they start using a credit card?
Alfonso: Before children can learn about credit, they need to understand the general concept of managing money. As a parent I think that we should start early, leading by example and giving the kids some small responsibilities around money. If someone doesn’t have the basics down, they could be in trouble when it comes time to manage monthly credit card bills along with other expenses. For my own kids, I started with the concept of a debit card. They spend their money and whatever they don’t spend they move to savings. After I see they are managing this well, I will introduce the credit card concept, which is to spend now and pay later—and make sure that you have the money to pay later.
Tip: Ask your bank about any age restrictions for having a debit card; some allow cardholders to be as young as 13; others require a minimum age of 16. There are also programs specially designed for children that allow parents to maintain oversight via a digital app; for example, SunTrust partners with Greenlight Financial Technology.
What are some ways to start educating your children about credit?
Alfonso: If parents add their children as authorized users on their credit cards, they can monitor the kids’ charges and set a spending limit. One idea is to add your child as an authorized user on a secured card—which is backed (or “secured”) by a cash deposit—where they can experience what it’s like to use a card. These types of accounts won’t have a large limit like the parent’s credit card might—most of the secured cards in the market have limits starting at $300—but it’s an easy way for kids to start building credit.
Tip: Making your child an authorized user gives them legal permission to use your existing credit card account. Cosigning on a credit card account for your child—if your card issuer allows it—puts more of the responsibility on them to manage the account and make payments but the ultimate responsibility for the debt still falls on both individuals.
How can parents determine whether their college-bound child is ready for the responsibilities of credit?
Alfonso: I think it depends on the kid’s maturity. It’s not set in stone that if you’re in college, then you’re ready to handle the responsibility of a credit card. Starting with the small things gives you a good indication of their behavior, and I think that each parent will see when the kid is responsible enough to use a credit card. For some kids, that will be at age 18, and they can be trusted with access to the parent’s card. Some will need to wait a little bit longer.
What are some considerations for giving kids earlier access to a credit card?
Alfonso: If you start using a credit card earlier, you build your credit earlier. An authorized user on his or her parent’s card may start to build their credit slowly, especially if they have no credit history at all. Once a child is able to have their own card, they will build credit even faster. If a person has good credit established by the time they reach full-time employment, they could borrow money for a car at a potentially lower interest rate, for example. They’ll also have the experience of managing a credit card.
On the other hand, they can definitely get in some debt early in their career if they mismanage their card. But it’s subjective, right? It’s not about the fact that the kids are in college versus being older or employed full-time; it’s about how responsibly they can manage a credit card.
56 percent of undergraduate students had a credit card in 2016, compared to just 30 percent in 20134
What is the single best piece of advice parents can pass on to their kids about responsible credit card use?
Alfonso: Always pay on time and create a plan for your expenses, whether it’s to pay in full or to pay in a specific timeframe. Either way, have a strategy for how you are going to pay it off.