Do We Give Our Children a Credit Card?
I am sure you have seen those ads, where Credit Card companies or Banks offer you FREE credit cards for the other family members. All of these credit cards are linked to the same bank account.
Initially this sharing of cards may seem like a good idea, you will get to those air-miles, fly-buys, or other bonuses faster and your kids will just pay you back right?
What is this teaching our kids?
That it is OK to spend their parent’s money, because the parents will bail us out anyways.
Imagine having a credit card with a limit of $10.000, $12.000 or $15.000, some folks may even have a limit up to $25.000. With these high limit cards you will give your children that amount of money to play with; They can spend your credit quite easily if they have no idea about money. Why don’t you just give them a blank, signed check or the whole check book in fact.
This is not teaching our children anything about money, financial responsibility or good money management for that matter, at all; It is just about the credit card companies.
You as a parent may end up losing the good credit score you have built up over the years.
There is another way. At the same time, you want them to build up a credit of their own.
A idea would be to give your children a credit card of their own. Linked to their own bank account and have a small limit of say $500 or $1.000, depending on how responsible your kids are. This way, when your children keep up with the payments, your children will start building up a credit score of their own. If your kids don’t pay back on time, they won’t be able to build up a huge debt. Just keep an eye on those interest payments when your children don’t pay on time.
An other idea is to have your children have a “secured” credit card on their own bank account. This means that your children need a certain amount on their account, which they can’t use, as a security against the credit limit of the credit card. This way your kids will never over-spend on their card and your kids still build up their credit score. Your children will still need to make sure they pay the card on time, every month.
Building up a good credit score is very important later in life when your kids want to buy a house or other bigger purchases. The mortgage rates and conditions are far better for people with good credit scores than the ones with poor credit scores.
The reason for this is that people with good credit scores have paid their credit cards on time and have a skill called, money management. Banks and other lending facilities will consider this as a sign of low risk for lending out money, therefore the conditions are more favourable for people with good credit scores.
I believe that having a credit card is not a bad thing, as long as you start off with a small limit to teach your children responsibility with money, and make sure they pay the debt off each month.
On some TV shows, people are advised to cut up their credit cards. Doing this does not solve the problem, the next credit card offer will be in the mail the next day. In the end it all comes down to proper money management.
These are just a few of my thoughts on this matter. I’d love to hear some of your ideas, suggestions or questions on the subject.
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