Children are getting their own credit cards at an earlier age, which if properly supervised and monitored, can be a good way to teach them proper money-management skills.
But far more parents are allowing their children to use their credit cards, which may not be such a wise decision.
A survey by CompareCards, a subsidiary of LendingTree, found 52 percent of parents have allowed their children under 18 to use their credit cards to make online purchases. Not surprisingly, 48 percent of the parents who did that now say they regret doing it.
"The survey found that Americans have been burned by the volatile mixture of kids and credit cards," said Matt Schulz, CompareCards' chief industry analyst. "While most Americans feel that you should wait until you're in your 20s to get your first credit card, they also think that it's OK to let your child use your credit or debit card to make online purchases, even though it often doesn't go well."
Blurred boundaries
One problem with the practice is that boundaries can sometimes blur in the mind of the child. Of the parents who allowed their children to access their credit card, 29 percent said the child had made at least one unauthorized purchase.
Another problem is the fact the child never sees the bill – the consequences of the purchase. All they know is they typed in some credit card information and got what they wanted. Maybe they reimbursed Mom and Dad later, but the connection between the credit card purchase and the payment isn't quite as strong.
The survey found that parents think the best age for a child to get a credit card is 21, but some personal finance advisors think that's a little late.
Authorized user on parents’ account
Legally you must be at least 18 to open a credit card account in your name, but a growing number of parents are making their children authorized users on one of their accounts. T. Rowe Price's Parents, Kids, and Money Survey found that 18 percent of children age eight to 14 carry a credit card on one of their parents' accounts.
Before taking that step, however, there are some things to consider. The child should have a source of income to pay for the purchases, either an after-school job or an allowance.
Secondly, children should be held accountable for their spending. While they will not receive separate bills, the parents' credit card bill will break down spending. Children need to be held accountable every time the bill arrives. If they charge things for which they can't pay, parents need to hold onto the card until they can pay it back.
If a child is practically an adult when they get their first credit card, often when going off to college, it is often too late to develop good money-management habits.