Should your child have a credit card?

A study from Bank Negara Malaysia shows that based on 2017 statistics, nearly half (47%) of Malaysian youth are struggling with high credit card debt while those with personal loans stand at about 38%.

So, is it a good idea to get credit cards for your children when many young adults fall into the deep well of credit card debt. And most often than not are bailed out by the two ever-reliable people around – mom and dad.

Today’s article looks at credit cards usage as a means of teaching children financial education at an earlier age, with the aim of developing young adults with better financial awareness.

Why you should give your child a credit card

Credit cards, when used responsibly, are a powerful instrument to learn from and create a strong economic basis for the future.

With maturity, responsibility, and firm boundaries, credit cards can prove useful for older children (teenagers, college students) to safely use.

But, why else should you consider letting them use credit cards?

Learn financial responsibility: With proper guidance and supervision by parents, credit cards can be used to educate your child about the financial realities of life, such as: spending wisely, incurring debt, clearing debt, interest rates, compound interest, budgeting, and consequences.

Safety: A plastic card is more discreet and less likely to attract bad intentions compared with carrying large amounts of cash. Do still teach them to be vigilant and discreet.

Convenience: It is convenient to swipe and pay, and convenient to track expenses by referring to bills. Set a regular check-in with your child to go over their credit card usage together.

Initiate good credit history early: This works if the credit card is in their name. By coaching your child to make timely and full payments on his monthly bills, a good credit score would then have been established for him. Do explain the advantage of a good credit score and how to maintain it.

Emergency fund: A credit card can be used in the case of an unexpected event which requires money urgently. You will need to define the meaning of “emergency” with your child.

But, wait…

Parents still need to do their part. Teaching financial education and growing healthy money habits are not as simple as just handing over a credit card to an older child and expecting them to “figure it out”.

Remember, getting trapped in credit card debt is an easy hole to fall into and tough to crawl out from.

So, what do parents need to do?

Parenting is hard. But, setting your child up for success has its rewards. Here are ways to coach and set boundaries for your child when it comes to credit card usage.

1. Set limits/boundaries

Set rules for usage and consequences for not keeping them. At their age, older children can easily be influenced by their peers.

Make it clear to your child, what they can or cannot, should or should not, do with their credit card and why.

Clearly define what rules they need to live by. How much? Who pays the bills? What defines an emergency? What do they need to prepare for your review?

Basically, define how much freedom they get, and considering their age remember that they will likely want to know WHY for everything.

2. Supervise

Schedule regular check-in sessions with your child where you can both review his spending and expenses together. Build trust by respectfully sticking to the schedule and not suddenly demanding an impromptu review.

Use the opportunity to have conversations with your child. Listen to their reasoning and patiently guide them where needed. Ensure they stick to the limits you set, and be reasonable in case there is a need to change the limits.

3. Educate

Take this opportunity to influence your child’s decision-making thought process.

Explain about spending wisely. Talk about needs versus wants. Discuss what debt means and the consequences of debt.

Together, draft out a budget your child should keep to, and periodically revisit it to revise it. Take the chance to talk about various financial education topics.

4. Be patient

Despite the financial education and advice, your child is, after all, a human who can make mistakes. Be patient, but be vigilant. Also, stay firm.

Without discipline and enforcement, it will be difficult to prove what consequences truly mean. Remember, you are preparing your child for real life.

Conclusion

You can give your children a credit card — with limits and supervision. The experience will help them be more ready for adulthood.

But, if you’re not teaching them financial responsibility, you might end up paying a lot more, financially and emotionally.

This article first appeared in https://mypf.my

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