You may think that teenagers and credit cards are a recipe for disaster but before you dismiss the idea give it a second thought, says Rajiv Raj.
We live in a world that is dominated by credit where everything from groceries to gadgets are now being bought on credit card and the generation next may well have no use for cash!
In a world like this, it is very important to give children the exposure about the use of credit and the need to build a good CIBIL score and make an attempt to increase it as well. So if you have been toying with the idea of giving your teenaged children access to a credit card, here are some compelling reasons to go ahead with it.
1. A good start to building credit
Till your child reaches the age of 18, s/he will not be authorised as a primary user of a credit card. S/he can however use an add-on card on which you are the primary holder and by doing so the card issuer begins reporting her/his credit usage to CIBIL which gives her/him a headstart on building good credit.
When you give her/him the add-on card, you must educate her/him on the responsible use of the card and the need to make timely repayments. Ensure that s/he makes the best attempt to repay the outstanding amount with the pocket money s/he earns or some odd jobs that s/he may take up along with her/his academics during vacations and the like. Teaching her/him responsible use of credit is a life skill that will help her/him improve her/his CIBIL score when s/he grows up and has access to more credit lines.
2. Using plastic money for the right reasons
It is important for you as a parent to tell your teenaged child that using a credit card per se is not a bad thing so long as it is used responsibly. S/he should not be intimidated by the idea of using the card, but use it for the fact that it is indeed supremely convenient. Whether s/he needs to grab a quick bite between classes or make a dash to the bookstore and does not have the cash on her/him, a credit card can come in handy.
3. Aid in an emergency
Much as you would like to protect your child from all evils and untoward situations in life, the truth is sometimes life may throw a spanner at them. Your teenager may thus find her/himself stuck in a situation that is not so pleasant. For instance, god forbid s/he misses a connecting train or a bus when s/he is on a school or college trip and may have to get a ticket on her/his own. Besides there may be medical emergencies as well where access to a credit card may prove to be a stitch in time.
4. Preparedness for life
Children who do not have access to finances at any early stage or are shielded from all financial decisions or situations in the family at the early stage in life may get a rude awakening when time comes for them to handle finances on their own. However, with guided access to a credit card in their teen years they grow up to be responsible individuals who are then equipped to handle credit responsibly for the rest of their lives.
While making your teen an authorised user of your credit card or giving her/him an add-on card is a good idea. Here are the things you should most definitely do:
- Keep a close watch on the credit card statement and encourage her/him to review the bills with you so that chances of unauthorised uses are waived off
- Encourage her/him to keep receipts of whatever purchases s/he makes and match them against the statements
- Always pay the outstanding amount in full within the billing cycle on time
- Tell her/him how crucial timely repayments are to build a good CIBIL score
- Check your own CIBIL report periodically and explain to her/him how to keep a watch over her/his CIBIL score
- Teach her/him that lending her/his credit card to anyone no matter how close is a strict no-no
- In case of a lost card, ensure that it is reported immediately
- Finally, be prepared to deal with some teenage drama and be ready for situations where blames will fly thick and fast, but where it is necessary to put your foot down like setting an account limit is the best way to avoid unpleasant or even rude shocks at a later date
Your teenage child may be quick to judge you or blame you, and may even come across as ungrateful, but as parent you are undoubtedly preparing your child for life by giving her/him access to a credit card from her/his teenage years.
Photograph: Rediff Archives
The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.