credit & debt

Should You Give Your Kid a Credit Card?

A checking account with a debit card is better for teaching your kids money-management skills and financial responsibility.

Parents and children don't see eye to eye when it comes to credit cards, though not necessarily in the way you might expect.

In the 2015 Parents, Kids & Money survey from T. Rowe Price, 52% of parents said they thought their kids should have credit cards to learn about managing money. But only 21% of the kids, who were between 8 and 14 years old, said they felt knowledgeable about credit cards.

I'm with the kids on this one. Their parents are putting the cart before the horse. In my opinion, kids that age are too young to be comfortable with credit or to handle such a responsibility. Children shouldn't use credit cards to learn how to manage money. They should learn how to manage money first, then graduate to a credit card. (See The Perils of Giving Kids Credit Cards.)

Even older teens struggle with managing credit. That's one of the findings of Money Matters on Campus, a survey of 42,000 first-year college students by EverFi and Higher One, educational technology companies. Compared with a 2012 study, students in 2015 were more likely to have credit cards—but they were also more likely to have paid credit card bills late and to have a larger total outstanding balance.

Hands-On Experience

The students admitted that they felt less prepared to manage money than any other aspect of college life. And "feeling prepared to manage money in college was not related to a student's experience with credit cards—it actually decreased as they got cards earlier in life," the report concluded. What really made a positive difference in both their financial knowledge and their behavior was experience with a checking account. "Respondents with a checking account, especially an individual account, were markedly more prepared than those who were unbanked." To which I say, Amen.

Over the years it has been my position that a checking account linked to a debit card is the best way to teach teens to manage a stash of real cash, especially if they're earning their own money or going off to college. Whether they manage the account on paper, online or with an app, the act of tracking their expenses and avoiding overdrafts is an invaluable, hands-on discipline.

With credit cards, however, young people don't learn personal responsibility as long as parents pay the bill—which they generally do. Once young people have proved they're mature enough to pay bills on their own (think rent for college students) without overdrawing their checking accounts, they can apply for a credit card on their own when they turn 21. (See How to Teach Kids to Handle Credit Cards.)

Other studies have found a similar link between bank accounts and financial literacy. Among U.S. students who took part in an international study to measure the financial savvy of 15-year-olds in 18 countries, those who had a bank account scored appreciably higher on the exam.

Schools Play a Role

Taking a financial-education course in high school also boosted students' financial knowledge and promoted responsible financial behavior, according to the EverFi study.

That's something parents can agree with. In the T. Rowe Price survey, 75% of parents said they thought there should be a personal-finance requirement to graduate from high school. Remember, though, that when it comes to money, studies consistently show that you are your children's most influential teacher.

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