Educating Your Teenager About Credit Cards

As with the joint card, parents need to review and discuss monthly credit card statements with their teen, says CCCS's Mark, and all parties should be monitoring expenses. "The kid should be keeping track of all his or her spending, rather than waiting to be told at the end of the month what he owes." 

When a parent authorizes a teenage child to use a card, the credit bureaus will report the use of that card under the parent's name as well as the teen's name. This enables the teen to establish a credit history by piggybacking on the parent's good credit history. And the reverse is true as well: If a parent has a poor credit history, the teen will start his or her financial life with a poor credit history. Because children under the age of 18 can't legally enter into a contract, the parent is the one who's legally responsible for the debt.

With a joint card, the teen's actions are more likely to accrue to her own nascent credit record. That's both the good news and the bad news. "There is a danger of a teen getting off on the wrong foot with their credit rating, if the kid is not well-trained and uses the card unwisely," says Minker.

To that end, jittery parents can also take heart from surveys showing that many kids understand the pitfalls of plastic. Teenage Research Unlimited's 2004 survey found that 38 percent of youngsters between 12 and 19 feel that credit cards should be used only by adults, and only 5 percent of teens believe credit card debt is no problem.

"Teens are getting the message that credit has a down side," says Parfrey. "But since debt is inevitable, we emphasize the idea of creditworthiness: good debt versus bad debt. After all, it's important to have an established credit record and credit scores. When you buy a house, it's not as if you can just put down cash on the barrelhead."