As parents, it is important to teach our kids how to be responsible with money. It is often done through the use of allowance and chores. But what about giving your child a bank account? Or a credit card? Are these moves parents need to make to help their children better manage money?
The world is big. As parents, we teach them everything they need to know before they leave the nest.
They know how to do laundry, take care of themselves, and maybe even cook something besides macaroni and cheese. But, it seems the financial education falls short.
While many schools are doing what they can to include financial education in their curriculum, it does not happen everywhere. The onus of teaching our children how to handle money is on our shoulders.
You may be tempted to get your child a bank account or credit card, but are you sure it is the right time?
Why should my child get a bank account?
Kids need to learn financial literacy and a simple way for them to learn the concepts of managing money. Giving them a bank account while living at home gives you the opportunity to teach them before they move from home.
A bank account teaches budgeting and self-control. After all, if they have only $100 to spend and the insurance payment of $60 is due next week, they really have $40 for the weekend out with their friends.
The earlier you can open an account for your child, the sooner he or she can learn about debit cards, bank reconciliation, and those dreaded overdraft fees.
Mistakes and mismanagement of their funds is bound to happen. However, when they can do so in a controlled environment, it is an opportunity for them to learn so they can grow to be financially responsible adults.
What is the right age for a bank account?
The truth is that it is up to the parent and child. Some kids are more responsible than others and the timing will differ for each of them. Start first with your bank. Some will only allow teens to have checking accounts.
However, some will allow kids younger than 13 to have an account, as long as there is a parental co-owner on the account. By the time your child is driving, he or she should have a bank account to start learning how to manage their money.
Why should I give my child a credit card?
If your child has a bank account, he or she has a debit card. It is attached to the bank. They know how to swipe. But, the credit card is something different. If misused, it leads to debt, excessive fees, and financial stress.
As much as you may not want your child to have a credit card, it is important you get them one before they head off to college. Otherwise, their first experience may be a spending frenzy that costs more than they can afford. There are several reasons why you may want to give your child a credit card:
If your child needs to buy a car or rent an apartment, a credit check will be run. If there is no credit to look at, he or she may be denied or turned down.
Since they do not have credit, they will not be the primary cardholder. Therefore, make sure you check with your credit company to ensure they report all credit activity on all user accounts.
Available for emergencies:
There is no greater fear for a parent than their child needing help and they aren’t there. These days we do not think twice about giving our kid cell phones for this reason.
A credit card can be viewed in the same way.
For most, the credit card will never need to be used for this reason. However, knowing they have it in their wallet gives you peace of mind.
Teach proper credit card use:
If you can teach your child the proper way to use and manage a credit card, he or she will be less likely to make those financial mistakes as an adult.
Teaching proper credit card use is more than showing them how to use it and to understand limits. They need to understand how the APR works and will affect what they owe. Show them how not paying off the $20 pizza charge can cost them $25 and more if they don’t pay the balance in full.
Talk to them about never charging more than what they have available in the bank – not based on the upcoming payday. They need to learn that charging is OK as long as they have the funds ready to pay the balance in full tomorrow.
What is the right age to give my child a credit card?
Once again it is up to mom and dad to decide when your child is ready for a credit card. You know when it is time to teach your child. But, most 15-17-year-olds can handle the responsibility – under your control, of course.
But, it is more than what you want. There may be age limits on your credit card. For example, the lender may not allow users under the age of 15. You will need to call your company to know for sure.
They also need to be able to pay off the charges they make in full each month. If your child does not have an allowance or job that brings them an income, they may not be able to do so.
Do I get my child their own credit card?
First of all, they have no credit so may struggle to get approval. Secondly, you need to have more control over the spending and what they can or cannot do.
Your child does not need to have a solo card until he or she Is living on their own and knows how to use it properly.
Money management is something all kids need to learn. Finding ways to do that where mom and dad are in control is smart.