Credit Cards for Kids

Giving your kids small doses of credit can be a productive introduction to the art of managing money.

Miraculously, your red-faced, clenched-fist toddler has grown up. Now you have a young adult on your hands who knows far more about iPods, cell phones, and fashion than you do. But your job as a parent isn't done just yet. It may be time to test your child's money management skills with a kid-friendly credit card.

Advantages: Convenience and responsibility

Depending on your child's age, you may have already handed over your plastic on one or more occasions. Some parents consider this the safest way to trust a child with credit-offer the card for a specific purpose, and then take it back when that purpose is fulfilled. But there are a couple of reasons why you might consider allowing your child to have a more permanent relationship with credit.

First, there's the convenience factor. If little Bobby is always asking for the plastic, it might make your life easier to provide a designated card. You may also be in the habit of handing over regular allowance payments. Not only does this require you to make periodic trips to the ATM, but it also tempts your child to carry around wads of cash. You can avoid both by replacing the allowance with a set spending limit on a credit card.

Secondly, trusting your child with credit can be a great way to foster good money management skills. A child who understands moderation in spending is less likely to develop debt problems later in life.

Options and how to use them

More and more credit card companies are providing families with kid-friendly credit options. Some of the choices are:

Make your child an authorized signer on your account by asking your credit card company how it handles additional signers. Her charges will appear on your statement, usually broken out separately from yours. This allows you to keep close tabs on your child's spending. But be careful-those charges are ultimately your responsibility.

Obtain a prepaid credit card for your child: Several banks offer prepaid cards designed for kids as young as 13. You can load up the plastic with your child's allowance each month, and then let him learn that if he overspends, he's tapped out.

Have your child obtain a student credit card. Older, working teens might be ready for their own accounts. A student credit card would be solely your child's responsibility, so you won't see the bill unless your kid shows it to you. Do your part by proactively explaining how the interest charges and balance rollovers work.

Try bringing up the credit subject next time you ask little Bobby to reprogram your cell phone. Don't sweat it if he makes a few mistakes on the road to financial responsibility. Hopefully, that'll help him avoid the big mistakes later.