Teens and young adults (under 18 years old) are not eligible to apply for their own credit rating, but they can be “carried” on their parents’ cards as authorized users. While giving a teenager a credit card may seem precarious, it can also be a positive educational tool for emerging adults.
“I view a credit card as a tool. If parents use it as a teaching opportunity, it’s a great thing.”
In a recent Junior Achievement USA survey, 1,000 teenagers found that while their parents almost always preferred giving them cash, they had used a parent’s credit card to make online purchases. Two-thirds of teens reported having a bank account, and some one-third of those respondents also had a credit card chartered by one of their parents.
As parents consider giving teens a credit card, financial educators advocate a graduated approach. First, teens should understand budgeting and savings. Then parents must establish a controlled, rule-governed environment for credit card use including pre-approved expenses and spending limits. Credit card usage should also be leveraged as an opportunity to explain the importance of credit ratings which define future financial health. Being a chartered user on a credit card builds teens’ credit files, ultimately allowing them to qualify for more favorable interest rates on car loans, rentals, and other credit.