Are Credit Cards for Teens a Smart Idea?

There is one area in which college students never fail to rack impressive figures up in - and that area isn’t necessarily a scholastic one. The average college student comes out of college with $3500 worth of credit card debt. Of course, this deeply upsets parents - who want more than anything else to help their children get a good start in life. When the subject turns to the wisdom of credit cards for teens, parents receive conflicting advice. Parenting experts seem enthusiastic about the tough love approach - that you should just say no when your kid asks for a credit card. The financial advice magazines seem to say the opposite - that young people need to make their mistakes early in life so that they have plenty of time to recover and learn financial responsibility. Which might be right?

Whether or not credit cards for teens are a smart idea, there's one thing that all the parenting and financial advice columnists agree on - that parents and children don't spend enough time talking about what money is all about and how financial responsibility is to be learned. There have been surveys done about this that have found that two out of three parents of 17-year-olds never ever bring up the subject of financial responsibility with them.

If you were to discuss financial responsibility with your 15-year-old, which tack would you take? There is a lot of sense you perceive on each side of the divide. Some parents justifiably see credit cards for teens as they do driving licenses for teens. Young people are naturally irresponsible - not having had the time to evolve enough to learn the importance of being responsible. A license to drive can end up in a drunk teen driving his car off the road. Irresponsible credit card use on the other hand, can end up in $20,000 of crippling debt for a family (and not infrequently has this been known to happen).

Parents who favor credit cards for teens sometimes go this route because they plan to fully keep an eye on everything that goes on with that card. They want to take every chance they get to teach their child what they might be doing wrong. If it weren't for this learning opportunity, they feel, their child would just turn 21, get his own credit card, and then promptly spend himself into ruin. They feel that they should let a child make his mistakes while there is someone to catch the more serious ones in development. And of course, they could just give their child an add-on card with definite spending limits.

Now there's quite a lot to be said for the argument that you need to give a child a credit card and supervise things closely to be able to tutor him. There are more young people than anyone would care to admit who have no idea how an APR works, how due dates work and what credit scores are. There was a Jaywalk segment on the Tonight Show with Jay Leno once that showed 21-year-olds displaying their deep ignorance about these matters. Many young people seriously believe that when your credit card statement asks for a minimum payment, that's all you need to pay. They just aren't aware of how making just the minimum payment each month leaves the rest of the money unpaid and racking up increased rates of interest.

Up until a year ago, banks would open their branches inside college campuses and issue cards to students - without getting their parents’ permission. The credit card reform bill put an end to that. A young person today can get a credit card only if a parent co-signs the application. What that shows to us is that the general consensus does lean towards getting credit cards into the hands of young people, but only doing so when parents have an active role to play.