Did your parents warn you about credit cards? Did they say something like . . . “not until you’re older!” They had good intentions — after all, it’s easy to abuse credit and dig yourself a hole, especially if you’re young — but there’s a better way to handle children and credit today. The solution to financial ignorance is education; not prolonged ignorance. The earlier your kids learn about credit and start building it, the better. Let’s explore credit cards for kids.
When you think about gifts for your children, you might think about trendy toys, the latest video games, clothes in bigger sizes, or even water park passes and concert tickets.
But what about a financial gift setting them up for life?
There is a simple, cost-effective yet often overlooked financial move that can benefit your children for the rest of their lives by providing lasting financial education: credit cards for kids.
Why Get Credit Cards for Kids?
First of all, although we’re exploring credit cards for kids, this isn’t about giving your kids access to unlimited funds so they can splurge at any time like their favorite celebrity.
This is also not about giving kids money they haven’t earned or can’t repay.
Instead, this is about building credit for kids: helping your children build proper credit while they are young. In addition to building credit, credit cards for kids can also teach how to use credit responsibly to avoid costly mistakes later in life.
There are two different strategies you can use to get credit cards for your favorite little ones:
- Depending on their ages, you can add them as authorized users on your cards
- Set them up with their own credit cards
We’ll look at each option in-depth in this article. But before we do, let’s examine the benefits of credit cards for kids as well as building credit for kids.
Benefits of Kids Having Credit Cards
As unconventional as it may seem, there are real benefits to credit cards for kids.
Did you know that 15% of your credit score is determined by the length of their credit history? It’s true. Here’s the full breakdown:
Compared to payment history and total available credit, credit history is one of the hardest things to build because it takes time.
Even if a young adult is the picture-perfect credit card user, time is not on their side.
Someone with a more established credit history is more likely to have a higher credit score. With a higher credit score, your children will:
- Pay less for car insurance premiums
- Be more likely to be approved for an apartment or house rentals
- Have an easier time qualifying for student loans or a car loan
- Qualify for lower interest rates
- Avoid security deposits on cell phones or utilities
That’s a pretty big gift to give, don’t you think?
Credit history is not the only benefit to credit cards for your kids. In addition to building good credit, credit cards for your children can help boost their financial literacy.
Instead of being forced to learn the hard way, credit cards for kids offer the opportunity to teach the following before stepping into the world on their own:
This will certainly give them an advantage over their peers who are opening credit cards for the first time when they leave home for college and are making financial decisions without any input or modeling from their families.
How To Get Credit Cards For Kids
Strategy 1: Adding Children to Cards as Authorized Users
The first strategy to consider is adding your children as authorized users on your existing credit card accounts. This means you’re essentially giving your children access to your credit card — but in their names.
They can then use all the features of the card, but the primary account owner (that’s you!) is responsible for the payments.
Many times, the authorized users inherit the credit history of the account. So, you want to make sure you are adding them to accounts you already manage responsibly.
You may be surprised to learn there are several big-name financial institutions issuing credit cards with no minimum age requirement, such as:
- Bank of America
- Wells Fargo
How To Add An Authorized User
You can quickly add your children as authorized users in a few simple clicks.
Sign in to your credit card account online and select the “add authorized users” option. You’ll then be prompted for your children’s personal information.
After processing and approval, they’ll ship off a brand-new card for your child.
Strategy 2: Giving Children Their Own Credit Cards
Another way to build your children’s credit history is to help them obtain their own cards.
As the shift to a cashless society continues, more and more families are making this choice. In a 2017 survey, 18% of families reported their children having credit cards.
Your child’s credit card can help establish their credit history fast while teaching them about using credit responsibly and improving their financial know-how.
You can help your teenager apply for their own credit card once they are 18 years old. Your teen may be able to apply on their own if he or she has:
- a job
- established credit history
If not, you will need to co-sign for them.
Best Credit Cards for Kids in 2020
Even if you aren’t ready to add your children as authorized users or give them their own credit cards today, understanding the best options now can help you make educated decisions later.
Not all plastic is created equal.
These mentioned below are some of the best credit cards for kids currently available.
The FamZoo Prepaid Card
If you want to keep the training wheels on, there’s an outstanding alternative to credit cards for kids under 18. The FamZoo prepaid card is a strong choice because parents and children both get access to the same account.
With FamZoo — their tagline is “preparing kids for the financial jungle — there are different protection features.
You can lock or unlock the card and even connect its usage to various chores. For instance, you can use FamZoo to post chores you’ll pay for. Your children can then check the chores off once they’ve completed them and be paid automatically through the FamZoo app.
Another perk of FamZoo is that it helps teach kids how to budget at a young age. It accomplishes this via its app, which allows kids to split their money into four categories:
Not only can kids allocate money responsibly, but parents can also incentivize positive money habits by matching their savings and investing contributions.
Parents can even set up an interest rate and pay interest on savings. Children can then track how their savings grow as a result of the interest they earn.
Greenlight, known as “the debit card for kids” provides a Mastercard debit card for kids. At the cost of $4.99/month per family, it allows you to choose the stores where your kids can spend money.
Parents can also pay allowance for chores directly to the card, controlled by a downloadable app.
It also serves as an educational tool: kids have the ability to track their balances in “Spend, Save, and Give” accounts to help foster smart spending, budgeting and even giving back.
GoHenry notes that “It’s proven that money habits are formed early in life”. That’s why they want to help your child or teen create healthy financial habits.
A debit card and app, GoHenry offers “unique parental controls for young people aged 6 to 18.” On the app, parents can set limits on where and how much their kids spend.
At the cost of $3.99 per child per month, users can set savings goals and set aside money to reach those goals.
Discover It Student Cash Back Credit Card
For young adults who are interested in opening their own credit cards, the Discover It Student Cash Back credit card is an excellent option. With no annual fee and an introductory 0% interest rate, it’s a great value for those trying to establish or improve their credit.
Plus, the card only requires a fair credit score, and it offers a range of incentives.
For instance, students can earn 5% cashback at a number of different locations, including:
- gas stations
- grocery stores
- wholesale clubs
Those cash rewards never expire and can be redeemed at any time.
The card also provides incentives for good grades. Students earn a $20 statement credit each year their GPA is above a 3.0.
This makes the Discover It card a favorite among college students.
The Journey Student Rewards Credit Card from Capital One
Another kid’s credit card option: the Journey Student Rewards Credit Card from Capital On, available to individuals with credit scores between 580-699.
Like the Discover It card, this card doesn’t have an annual fee and also offers cashback on purchases. Cardholders start out receiving 1% cashback.
However, by paying their credit card bill on time, they can boost their cashback bonus from 1% to 1.25%.
Avoid These Mistakes: Credit Cards For Kids
It’s true there are some pitfalls to avoid with your children’s credit card. Authorized users can quickly reap benefits from a shared credit history with other cardholders who have joint access to the account.
But it can be a double-edged sword since mistakes are also shared.
One user’s irresponsible spending could have lasting consequences for everyone in the family.
Even if an authorized user is removed from the account, the original account owner is still left with any damage done.
Another concern is that credit card debt is actually the most common type of debt in the United States.
If children and teens have access to credit cards without really understanding the consequences of misusing them, they could face a lifetime of debt.
One way to avoid these pitfalls is to add your child as a user without giving them access to the card. Their credit history will continue to grow, but you can wait until they demonstrate more financial awareness and responsibility before allowing them to use the card.
Other families do not feel credit cards for kids under 13 years of age are appropriate; instead, they opt for prepaid cards until children demonstrate responsible spending habits.
If you and your kids are ready to take the credit card plunge, use these tips to dodge common pitfalls:
- Work with children to set spending limits so the card balance can be easily repaid.
- Make sure children understand the importance of quickly reporting lost or stolen cards.
- Help your kids set up account access through a mobile app to monitor activity within the bank account.
- Read the fine print. It is important you understand all the terms and conditions of the card.
- Check credit reports for any errors and to understand you and your children's credit scores better.
Use Mistakes As An Educational Opportunity
At the end of the day, be aware that this is a learning process, and your children will make mistakes.
We all have.
That’s why it’s important to use any and every mistake as an educational opportunity so that they don’t make these mistakes in the future and fall into bad debt.
Teach More Than Just Credit Habits
Educating your children about healthy money and credit habits is an incredible step — but don’t stop there.
There are still other areas of finance that you can teach them, such as:
- What ”Financial Adulting” looks like
- How to graduate college debt-free
- How to pay less taxes
- What retirement is — and how to save for it
- How to begin investing
Final Thoughts on Credit Cards for Kids
If you tell someone your to-do list for the weekend includes getting credit cards for your young kids or the teens in your family, they might be shocked.
But once an understanding of how credit cards work for kids and the advantages they can unlock, it’s easy to see it can be a smart money move.
Continued Learning: Credit
Now that you know the benefits of credit cards for kids along with the pitfalls to avoid, continue your financial education with these free resources:
Amy Blacklock is the co-founder of the websites Women Who Money and Women's Money Talk, and the founder and blogger behind Life Zemplified.