TAKE CHARGE OF YOUR MONEY
Teenager wants a credit card
INQUIRER.net
First Posted 10:37:00 09/23/2008
Filed Under: Personal Finance, Banking
(This is part of Take Charge of Your Money , a partnership between INQUIRER.net and Citibank to help readers handle their personal finances well.)
Question: My eldest son just turned 17 and is now a senior in high school. Last weekend, he asked me if he can get a credit card. I said I’ll discuss it first with his dad. We’re not sure if this is a good time for a teenager to get a credit card. What do you think? – Cory M.
Answer: The credit card was designed to make life easier for people — with it, you don’t need to carry much cash around, and you can pay your bills, get a cash advance, and make online purchases easily. You can also get a firm handle on your finances by having a credit card as all your purchases per month are summarized in one statement for easy reference.
And with the busy lifestyles of people today, it does make sense to have a credit card with you all the time to meet emergencies and to minimize going to the bank to withdraw cash.
Although credit cards are targeted toward working adults whose capacities to pay have been verified, they may also be extended to minors—the teenagers.
Before you balk on this, remember that a credit card is made to make life easier. It is not a license to charge all purchases—necessary or not—to be paid in the future. The key really is to manage the use of it well.
Over the years, a number of parents have applied for supplementary credit cards to be issued to their children in upper high school or college. They use the credit card as a form of allowance, which can be used by the child for necessities such as gasoline and books. Having a credit card will also allow children who go out of town (some children compete in athletic or academic competitions out of town or abroad) to charge their living expenses. This is also a great help in emergencies should the children suddenly need funds.
Of course, there is the risk that children may overspend. Since they hold supplementary cards, parents are still responsible for paying their bills, and some of them do get the shock of their lives when they get their bill and find that the children have overspent.
There is a safeguard in place to prevent this from happening. With Citibank cards, you can impose a spending limit on your child’s supplementary card. The spend cap starts at P5,000 and can be increased in increments of P5,000.
Parent-child talk
Before giving your child a supplementary credit card, sit down with him and lay down the rules. The following rules can greatly help your child learn to manage finances well.
• State when the credit card may be used (e.g., to gas up, buy books, or buy clothes). Discuss when the card may be used in other instances—during emergencies, for instance. Define what constitutes an “emergency.”
• Inform your child of his spending limit. Tell him what would happen if he goes over this cap—his credit privilege will be put on hold and he may be asked to pay for the excess charges.
• Teach him to budget. It’s important for teenagers to know how to budget their money—whether that’s cash on their hands or their credit privilege.
• Teach your child to buy wisely. When he likes to buy something, remind him to ask himself if it is a need or a want. If it is a want, tell him to think twice, thrice, even more times, before buying.
• Tell him to safeguard his credit card. Because it can fall into the wrong hands, the credit card should be kept safe at all times. Make sure he signs at the back of the card as soon as he receives his supplementary card. Then tell him to not keep it lying around, and to give it only to authorized store personnel for credit purchases.
• Teach your child online safety. Your child may want to purchase something online. Remind him to observe safety precautions, such as going only to secure websites and logging off properly. Tell him that the bank will never call him to ask for his PIN.
• Study the bill with your child. When the statement of account arrives, show this to your son and together go over every charge made. This will instill in him the habit of checking his bills before paying for them in the future. Should there be a discrepancy, call the card company in his presence.
• Keep a photocopy of the credit card. Photocopy the front and back of your child’s supplementary card and keep this in a safe place. If the card gets lost or stolen, it will be easy to report the incident.
• Have your child keep the card company’s hotline on his address book. Make sure he stores this number on his mobile phone and is written on his phone book or notebook. If something happens such as the loss of the card, he should call the hotline as soon as possible so the card company can disapprove succeeding unauthorized purchases made by unscrupulous persons using the card.
For more, visit www.usecreditwisely.citibank.com.ph, which offers credit information for teens and adults alike.
(INQUIRER.net and Citibank invite readers to ask questions regarding financial matters. Send your questions to personal_finance@inquirer.net or comment through our personal finance blog called MoneySmarts)
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