Credit Cards with Training Wheels for Teenagers
When I was in high school my parents gave me a credit card. They added me as an additional card holder on their American Express account and I thought I was the luckiest girl in the world. Looking back, I can't believe my mother and father were so trusting. While I never abused my spending power, I easily could have and they would have been stuck paying off the balance. If they didn't, they would have put their own credit scores at risk.
Today, parents don't have to take on that risk. If they want their teenagers to carry a credit card instead of cash, Mom and Dad have options that can protect their credit scores no matter what their children do. I recently came across two products from American Express that families may want to consider. The one caveat: they don't come cheap.
An Additional Card with "Custom Limits"
Offering to add a child to your credit card account isn't new and you can do it with just about anything you may already be carrying in your wallet. American Express, however, added a twist that sounds very appealing.
American Express' Custom Limits feature allows parents to add a spending limit just to the child's credit card. This means you can continue to use your AmEx card the way you always have, but your 16-year-old would be limited to, say, $200 before the card gets declined.
Parents can also increase or decrease the card's limit at any time. So if your little fashionista needs some extra cash for a back-to-school wardrobe, you can increase the amount she can spend for just that one shopping trip.
Another safety feature I like is that the additional card has a separate account number. This is useful if your teenager is a bit careless and leaves her AmEx at the mall. Rather than cancel the entire account, you only have to report that one credit card is missing. Then, while little miss forgetful waits for a replacement in the mail, you can continue to safely charge away.
The cost: Outside of the regular American Express membership fee, you'll also get hit with an annual cost for ordering additional cards. AmEx charges Green cardholders $30, Gold cardholders $45 and Platinum cardholders $175. The upside is that you won't pay extra to add a few siblings.
The PASS Card
The second option is a Pass prepaid card that Mom and Dad can preload on either a set schedule -- think allowance -- or when the money runs out. A nice feature here is that if your teenager has a knack for spending beyond his limit, his card will get denied but he won't get charged an overdraft fee. And if your teenager loses the card, you can get any remaining value back.
The cost: The Pass card has a monthly membership fee of $3.95, which is waived until October 1st. There is also an ATM fee associated with this product -- $1.50 per withdrawal -- so don't confuse it with a debit card. The good news is that you won't get charged for activating or reloading the card with more money.
Are there other cards out there that are cheaper? I did come across some prepaid cards that didn't have monthly usage fees. You can find them at Bankrate.com or Cardhub.com. And as I mentioned earlier, you can always add your child as an additional card holder on just about any bank's credit card. Fees and perks, of course, will vary.
Whether you think your high schooler should have a credit card is a very personal decision. Your answer will likely be determined by your own spending philosophy and your child's maturity.
Would you consider giving your teenager a credit card?
Stacey Bradford is the author of The Wall Street Journal. Financial Guidebook for New Parents.
Too Much Credit courtesy Flickr user Andres Rueda, CC 2.0
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