The San Francisco Gate just reported that tween sensation Miley Cyrus (a.k.a. Hannah Montana), daughter of achy-breaky legend Billy Ray Cyrus, frequently gets in trouble from her parents for her spending habits. More recently, the then 14-year-old (she just turned 15) found herself in time out for losing her credit card.
Miley told Oprah on TV, “Well, I had a credit card, and it’s like, you have to be responsible. I lost it in like, two days. I’m still in trouble.”
I’m all for teaching young people personal finance early on, but is it really wise to allow a 14-year-old to have a credit card? I think that for those 16 (maybe even 18) and under, it is much more prudent to give them cash or a debit card. It’s not like you can’t still give the kids a lesson about credit. A debit card, which is similar to cash — once you spend it, it’s gone. A credit card is different. You’re not spending your own money; you’re just borrowing it. And many preteens can’t comprehend that level of financial responsibility.
Lest we not forget about fraud and identity theft. Losing a credit card can put your financial information in the hands of those with the worst intentions. Federal laws protect credit card users, but unauthorized charges can be a pain to sort out with your issuer and your credit score can be wrecked in the process, even if you’re a minor. With a debit card, if you wait too long to report the loss, you may be responsible for all unauthorized charges. Warn your kids about the importance about keeping track of the credit or debit card, for responsibility and identity theft’s sake.
If you do give your kid a credit card, be smart and enforce limits. My mom gave me a copy of her MasterCard when I turned 16 and it was for gas and emergencies only. Because I knew I would be crucified if I took it on a shopping spree, it stayed in my wallet, mostly forgotten, unless I was in specific situations. If I got in a bind and had to use it outside of my restrictions, I paid my mom back as soon as humanly possible. If you allow the kid to rack up whatever charges they please, they won’t understand how credit works. If you’re a sucker, at least let them know that when the bill comes, they will need to look at it with you. Decide whether you want them to pay you back for certain types of purchases. A credit card with their own name on it can wait until college.
But don’t take my word for it. Liz Pulliam Weston, a financial author and expert, has a great column on MSN that talks about how to introduce finance and credit in their life, and at what stages. Check it out.