Watching your child grow from an infant to a young adult is almost always a scary experience for parents.
It’s exciting, too, but there’s a very real fear that they could make a childish mistake with very adult consequences.
While getting a driver’s license is the most commonly discussed example of this, it’s unwise to ignore the financial danger of opening a credit card.
A few months of irresponsible spending can damage a teenagers credit score significantly, setting them up for an adult life fraught with financial difficulty and anxiety.
But at the same time, they eventually need to take that plunge in order to become a fully-developed adult. So how do you know when the right time is, and how do you prepare them for that big step?
How to prepare teens for their first card
Before giving your teenage child their first credit card, let them practice by using a debit card tied to their own checking account, or a prepaid card with a reasonable amount loaded.
It’s easy to rack up a high balance and interest fees on a credit card, and that can turn into a financial disaster very quickly.
Using a debit or prepaid card is a great way for them to learn about limits, overdrafts and what to do if you’ve run out of money, but in a much safer way.
A debit card can also teach them about avoiding ATM fees that can eat into their balance.
You can set up monthly meetings to go over their statement to see how much they’ve been spending, and if they’ve encountered any fees.
Don’t try to force them to show you all their transactions, but check to see if they’ve come close to hitting zero on their balance or paid any unnecessary fees.
If they’re interested in learning how to budget, you can also tie their debit card to a Mint.com account which will notify them when their balance is low, when they’ve paid a fee and when they’ve exceeded a category in their budget.
The key is to allow them some room to make mistakes and experience the consequences in a safe way.
If you hold their hand too much they may not fully appreciate the importance of protecting and managing their credit, but an overly casual approach could lead to real-world consequences that extend beyond the realm of a safe learning space.
When Are They Ready?
Determining when your teen is ready for a credit card is like determining when they’re ready to drive.
You’ll never be quite prepared to see them take on so much responsibility, but you know that you’ve adequately trained them for this moment.
If they’ve been using a debit or prepaid card for a few months and haven’t racked up an overdraft balance or excessive fees, they may be ready for their own credit card.
Before handing them one, make sure to go over the differences between credit cards and debit cards.
Show them how to go online and pay a credit card bill, the interest fees they’ll pay if they keep a balance on the account and the late fees they’ll owe if they don’t pay the bill on time.
You can have them watch you pay a credit card bill to explain the difference between the minimum owed, the account balance and the statement balance.
If the credit card you give them will be tied to your own account, you can also institute your own separate fines if they go over an agreed-upon spending limit.
Unfortunately, even if they’re ready a credit card, they may not be eligible to receive one.
Because of the Credit Card Act of 2009, those under 21 can only receive a credit card if they prove they have the income to pay for it.
Usually, the credit card doesn’t require pay stubs to verify your income, but it is legal for them to ask for pay stubs and other forms of proof of income.
Best Cards for Teens
Discover it for Students
This card is perfect for teens who are already 18 or older and have the income to qualify for a credit card on their own.
There are two versions of this card. The Discover it for Students card still offers 1% cash-back on all purchases, but also 5% for categories that change each quarter.
Both cards have zero interest for the first six months and then switch to a variable APR.
They also offer a “Good Grade Reward” of $20 every year for up to five years that the student qualifies.
There’s also no annual fee for either card, and both provide free credit score monitoring for students looking to track their credit history.
Both cards have no foreign transaction fees - perfect for a teen about to study abroad. This is a great starter card for a high school senior about to go off to college.
Blue Cash Everyday from American Express
If your teen doesn’t qualify for a credit card of their own yet, you can add them as an authorized user on your account.
The Blue Cash Everyday from American Express is a perfect fit for parents wanting their kids to try out a credit card.
The card allows authorized users to have their own separate spending limits, which means you can have your own $5,000 limit while your teen is limited to $500.
As a bonus, American Express divides its purchases by user so you can see what your teen has been buying without sorting through your transactions as well.
American Express is also one of few credit card companies that reports authorized users to three major credit reporting bureaus, meaning your teen will build their own credit score while you have control over how much they can spend.
This card is good for teens who want the experience of using a credit card, but can’t get their own just yet.
Bluebird from American Express
For families whose teens don’t have a checking account and can’t get a credit card yet, the Bluebird from American Express is a perfect option.
The prepaid card is a favorite by experts, who love that it can handle direct deposit, has no regular fees, and even has a savings account option.
Teens or parents can load up the card for free in person at a nearby Wal-Mart or online.
They can withdraw cash, also for free, at an authorized ATM. Bluebird also allows sub-accounts, which means one family can be on the same account and have separate spending limits.
You only need to be 13 to have a subaccount, making this a great starter card for teens who won’t be able to open a credit card for years to come.
Unfortunately, prepaid cards do not report activity to any of the credit reporting bureaus, so your child won’t build their credit using this card.
It’s still a good option until your teen is responsible enough to be an authorized user on your account or have their own card.