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5 signs your teen is ready to handle credit

January 05, 2015

By Dan Rafter | Money Rates Columnist

ready to accept limits

When used properly, credit cards can teach teenagers how to manage money and help them establish a credit history. When used improperly, they can lead to huge amounts of debt and missed obligations -- two things that can wreck your teen's credit before it's really gotten started.

How can you know when your teen is ready for a first credit card? Financial experts say that there is no one age at which teens can handle that first piece of plastic. Some teens are ready to manage credit at 16 while others won't be ready at 19. It's up to parents to look for the signs that their teens are mature enough to handle the responsibility of a credit card.

"You don't just out of the blue get a credit card for your kid because he's doing well or done his chores," says Janet Lehman, a child behavior therapist and co-creator of the Total Transformation Program in Westbrook, Maine. "A kid should never be given a card carte blanche, because you will start something you'll regret. We need to teach kids how to use them and what they're all about, and how to manage money in a responsible way. It's all about teaching and coaching."

The good news? College students are getting better at managing credit cards. Thirty-two percent of students with credit cards in 2013 carried a zero balance, and 46 percent had a balance under $500, according to Sallie Mae. Additionally, just 2 percent carried more than $4,000 of credit-card debt.

Here are some signs that your teen will fall closer to the zero-balance group than the $4,000 one.

1. Your teen talks about money

Dr. Susan Kuczmarski, Chicago-based author of three books on parenting and family and a business teacher at the Kellogg School of Management at Northwestern University and Loyola University Chicago, says that before they get their first credit cards, teens should already be involved in the financial decisions their family makes.

For instance, a teen might give input into how much family members should spend on holiday presents or how much they should set aside for a summer vacation. This financial decision-making can help them make better choices with their first credit card, Kuczmarski says.

"Teens learn a great deal about decision-making by experiencing it firsthand," Kuczmarski says. "Follow this general rule: As teens get older, increase their involvement in decision-making.They are often capable of making informed decisions and have valuable information to offer."

2. Your teen is ready to accept limits

Lots of teens may ask for a credit card, but teens who are ready for them will sit with their parents to discuss limits on what they can use their cards for, says Elle Kaplan, chief executive officer and founder of LexION Capital Management in New York City. Teens who won't accept limits -- say, that their cards can only be used for buying school supplies or textbooks -- aren't ready for that first card.

"Set very clear expectations about what the credit card is to be used for," Kaplan says. "Emergencies only? School supplies? Gas?"

3. Your teen is already successfully managing a bank account

Teens need to learn about money -- and show that they can handle it -- before they get a credit card. Andrew Johnson, communications and public relations manager with the Troy, Michigan, office of GreenPath Debt Solutions, recommends that parents set up savings accounts for their teens.

If their teens regularly deposit money in these accounts and refrain from draining it, they might be ready for the responsibility of a credit card, Johnson says.

4. Your teen has a job

Lehman says that teens should be holding down a job and earning income before they get a credit card. Working can help teach them the value of money, and might make them think twice before running up too much debt.

To qualify for a credit card, teens will need an income anyway. According to the Credit CARD Act of 2009, credit card applicants under the age of 21 now need to show proof of income to qualify for an account in their names.

5. Your teen handles peer pressure well

Does your teen succumb to peer pressure on a regular basis? If so, then that teen might not be ready for a credit card, Johnson says. Those teens that can resist the whims of their peers? They might be mature enough.

"They need to be diligent and not cave in to peer pressure from friends to use the card on a whim," Johnson says.

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