America's credit card debt is nearly $1 trillion, according to Federal Reserve data. How much of that debt belongs to your kids?
The 2019 Parents, Kids, and Money Survey from T. Rowe Price shows that credit card use has skyrocketed among 8-to-14-year-olds over the past seven years – from 4% in 2012 to 17% today. That's almost as high as the percentage of kids with checking accounts (19%).
Only 41% of kids with credit cards pay their bill. Parents pay 59% of the time – although this statistic could be misleading. Kids in the 8-year-old to 14-year-old age range are probably paying off their debts with allowance money or earnings from chores. Parents are responsible for charges in any case since children that young can't open credit cards under their own name.
If you've added your child as an authorized user on your credit card account and are simply paying off the debt without reviewing charges or giving them some accountability, you're missing a teaching opportunity.
You can still monitor your child's credit card usage without damaging privacy – and you should. A CompareCards.com survey found that 52% of Americans with kids below the age of eighteen have let their children utilize a debit or credit card to make a purchase, but 29% of respondents revealed that their child had used their card without consent.
Before adding your child as an authorized user, make sure that your child is old enough to qualify and that the card issuer reports the child's spending activity to the credit reporting agencies. Your child will build a credit history that will come in handy later in life when he or she needs to establish his or her own credit.
Establish the spending and payment rules before adding your child to your account. What are acceptable uses of the card? Will your child reimburse you each month? What happens if he or she goes beyond your agreed spending limit? You could use overspending as a teachable moment, charging "interest" to be paid back to you as the cost of spending more than you can pay off. It's a perfect way to show your child that credit comes at a cost.
If your child isn't responsible enough to be added onto your account, start with a prepaid card or a debit card with a limited amount of funds. You'll have the safety factor of a smaller limit – but you won't build your child's credit. Use a debit or prepaid card as a steppingstone to teach budgeting and responsible habits. Try the credit card path later in their teen years, before the greater spending temptations of college arrive. Compare our credit card offers for people with limited or no credit history.
There's nothing wrong with kids using credit cards – as long as it's part of a credit-building strategy designed to teach children how to use credit responsibly. Make sure that your children understand billing statements, credit reports, and credit scores – including the importance of always making payments on time and keeping your credit usage low compared to your credit limits. Help them to create a budget and show how credit cards should be used within that budget. You can check your credit score and read your credit report for free within minutes by joining MoneyTips.
Most importantly, be a good example for your kids. If you're one of the 17% of survey respondents who have carried a balance on their credit cards for as long as they can remember or one of the 8% who owes at least $20,000 in credit card debt, your financial advice won't carry much weight with your kids. They'll listen to what you say, but they'll also watch what you do.
If you want more credit, check out our list of credit card offers.