Editorial Policy

Lady Gaga tickets aside, should teens have cards?

Laura Mohammad

March 14, 2014

Does authorizing your underage teen on your credit card conjure images of front-row tickets to that upcoming Lady Gaga concert, debits from Amazon Instant Video and charges in the hundreds of dollars to your family’s iTunes account?

I know it did for me. That is, until I got talked down off the ledge by Brenna Smith.

You see, Brenna was on her mom’s card when she was about 16, and it wasn’t the picnic a teenager may think it is.

“Growing up, my mom would only pay for my ‘needs’ and not ‘wants.’  So, if I grew out of a pair of jeans, she would buy that, but if I wanted a new pair of shoes, I had to pay for it,” says the 32-year-old CEO of networking and community website SheNOW.org.

Brenna had to show she could responsibly handle a card with a — wait for it — $100 limit before the limit increased. Brenna was given her own co-signed card once she turned 18.

Someone under 18 can’t sign into a contractual agreement, so the only way a minor can use a card is as an authorized user, says ClearPoint Credit Counseling Solutions blogger Thomas Bright. That means they get the benefits of improved credit ratings and access to the card, but not the disadvantages, provided the parent has a good credit record, says blogger Greg Meyer of Meriwest Credit Union.

It also provides parents an opportunity to instill good money habits, says Brenna.

She advocates the tough-love approach to card use among teenagers. Here are her tips to a peaceful life with your card-carrying teen:

1) Start with a low credit limit. “Having access to a lot of ‘money’ is very tempting at first, so many teens fall into the trap of spending it like they have it,” Brenna says. “As I learned to spend within the bounds of my card — and pay things off on time — my mother gradually increased my spending/credit limits. Also, you don’t want to get stuck with a $3,000 bill because of one wild and crazy teen night.”

2) Work together. Encourage your teen to develop a budget, track spending, understand where money is going and even do a total at the end of the year. “‘I spent HOW MUCH at McDonald’s over a year?'” Brenna says they’ll ask. “Many teens, and adults alike, have no idea how much they spend on frivolous items, nor do they understand where their money goes.”

3) Stick to your guns. “As my mom would say, ‘Too bad, so sad,'” says Brenna. “If they overspend, have late fees, don’t step in and pay them off. What are you teaching them if you rescue them from their financial issues? They need to feel the repercussions. As a parent, you want to help and protect your child from these things, but I promise, the financial discomfort is a learning lesson.” But what about the unpaid bills impacting your credit score? Keep paying the bill, but require your teen to reimburse you. “The spending habits of the user can be detrimental to the primary account holder if the user runs into trouble,” warns Bright.

4) Don’t be afraid to pull your kid’s card temporarily. As the Department of Motor Vehicles likes to say: “It’s a privilege, not a right.” Remember, this is supposed to be a life lesson, so make it one. Let them make dumb mistakes, and then learn from them.

The dumbest thing Brenna ever did with her card? Cover a friend’s expenses. “I often found myself saying: ‘Oh, I’ll get it, and you can pay me back.’ Ninety-nine percent of the time, I never saw a cent.” What did Mom do? “She let me handle it,” Brenna says. “If that’s what I chose to do, then I would have to pay the consequences in terms of paying for it myself, covering the interest, making sure I didn’t go over my balance. It taught me not to throw my credit card down as quickly.”