In 2012, American teenagers spent nearly $105 billion dollars. Due to the ever-increasing amount of money being passed into the hands of individuals between 14 and 19 years of age, credit card companies are on a mission to begin targeting teenagers as credit card recipients (“Teenagers and Credit Cards,” 2013). The good news is that giving teenagers access to their own credit cards is likely to teach them valuable lessons about financial responsibility. This essay will explore different ways teens may learn to successfully manage their money, have a basic understanding of various financial institutions, build credit for future large purchases and make certain they are equipped for financial emergencies.
When a young boy or girl reaches the age of 15 in the United States, in most states, they are eligible to apply for a work permit. This influx of income at a relatively young age is essential for learning and building positive spending and saving habits on an individual’s road to fiscal responsibility. Allowing teenagers to obtain credit cards would allow the young adults in question the ability to figure out how credit cards, credit scores, and credit payments work, in addition to reinforcing positive spending habits. Additionally, the relatively small amounts of money involved allow the early learning process to be safe for both the individual and the parent or guardians of the teenager. Furthermore, the ability to obtain and use a credit card from a young age will allow the teenager to assess for themselves just how powerful the disconnect between plastic and currency can be; the ability to swipe a card and receive whatever it is you wish to buy is a powerful impulse, and only making that ability available to individuals who have relatively large sums of money to spend, usually through full time jobs, produces a negative psychological effect on the individual at a time when they can least afford to be making excessive, frivolous purchases. To allow teenagers to make the connection between money and plastic while their bank accounts remain small is a far more logical and fiscally sound way to introduce credit cards to an individual. Ultimately, all of these positive effects will very likely decrease a teenager’s chances of accumulating unwanted debt later in life.
Allowing teenagers to obtain credit cards will give them an advantage when it becomes time to understand and implement financial tools, such as credit scores. A credit score denotes the strength of your ability to pay back lenders and is characterized by a digit between the numbers of 300 and 850 (“About Your Credit Score,” 2013). The strength of an individual’s credit score can determine the outcome of many important transactions, most notably the purchase of a home or a vehicle. The earlier an individual understands the importance of maintaining a good credit score, the more likely it will be for that individual to actually adhere to the savory payment practices that will produce such a score. For a teenager, learning essential financial information like credit scores, banking procedures, terminology, and possible disciplinary actions can be the difference between a bankrupt or financially successful adult. Many credit agencies employ disincentives to making late payments such as late fees, penalties or drops to your credit score. Educating teenagers on these procedures, how best to avoid them and what to do in the event that any one of these problems occurs can ensure the individual will be able to successfully overcome the challenges associated with credit card use.
In an economy where the value of a dollar is declining relative to the value of a home or vehicle, allowing one’s self an ample period of time to build good credit is essential. Allowing teenagers to use credit cards can give them that much needed time, so that when the day comes where they must submit a credit history in order to obtain funds for a mortgage, they will be secure in their faith that the good credit score and extensive credit history they have compiled will ensure the approval of their lender. Other important purchases and services that will need the approval of a financial institution based upon the strength of your credit history include renting an apartment, obtaining favorable interest rates on loans, obtaining lower auto and home insurance and potentially even your viability as a candidate for a job position, as many companies are becoming increasingly interested in the credit history of job applicants (“Should Teens have Credit Cards?” 2013). Additionally, allowing the needed amount of time to build a comparably good credit score may facilitate the previously mentioned learned habits associated with fiscal responsibility.
In the event of a potentially catastrophic emergency, allowing teenagers to obtain and use credit cards can ensure that the individual in question will never find themselves without an alternative to cash for their transactions. While the potential for abuse of a credit card exists in situations such as these, it is decidedly ideal for a teenager who has run into a serious issue, such as running out of gas a significant distance from a particular destination, needing their vehicle to be towed in the event of a potential breakdown or underestimating their expenses far from the fiscal safety net of home or their parents (perhaps going over budget on a trip and finding one’s self unable to purchase a ticket back) to have access to a credit card, in order to ensure their safety and mitigate any potential loss of assets. Finally, this enabling of a credit card specifically for emergency use can be effectively implemented as a litmus test, to gauge a teenager’s responsibility when handling funds and their ability to only use the credit card in emergencies. Should a teenager be able to successfully adhere to the rules placed on their emergency credit card, then the emergency card can be viewed as a lead-in for the full privileges associated with owning and using a credit card for their own personal purchases.
Allowing teenagers to possess credit cards is a very important step in educating American youth about the potential dangers and responsibility associated with being a fiscally sound adult. While detractors of such a policy may point to potential signs of abuse, for the reasons explored in this essay, teaching fiscal responsibility to teenagers is paramount to breeding financial success. Giving kids a chance to learn all about the credit process, how to make certain they can build and maintain good credit, establish productive spending habits and how to appropriately deal with emergencies using their credit cards are all positive effects that can be attributed to the ability of a teenager to obtain and use a credit card.
About your credit score. (n.d.). Your Credit Score: Understanding All 3 FICO Credit Scores. Retrieved November13,2013, from http://www.myfico.com/crediteducation/credit-card-debt/teenagers-and-cards/#back
Should Teens Have Credit Cards?. (n.d.). About.com Financial Planning. Retrieved November 14, 2013, from http://financialplan.about.com/od/studentsandmoney/a/TeenCreditCards.htm
Teenagers and Credit Cards -- Beware. (n.d.). Teenagers & Credit Cards. Retrieved November 13, 2013, from http://www.consolidatedcredit.org/credit-card-debt/teenagers-and-cards/#back