When I was in high school and I started driving, my mom added me as an authorized user on her credit card. This meant that I got my very own credit card that I could charge whenever I wanted. I was like a grown-up without a job! How cool right?
When my mom added me to her account, I got my own credit card, yet I wasn’t building credit. When someone adds you to their credit card account, you just get a separate card, however you are still not responsible for the debt that you incur. It’s a huge liability if you do not trust the person you are adding, since the main person on the account will always be responsible for paying off whatever has been charged through all the credit cards linked to the account.
I will never add my future kids as authorized users on my credit card… here’s why:
1. I Didn’t Learn the Value of Money
I got the credit card when I was 16, and my mom just handed it to me. I basically knew from watching her countless times, that all I had to do was hand the card over to the cashier and sign the receipt. Boom! Instant happiness. It would have been more effective if she just gave me cash, so I could at least learn just how important money was. I never felt like I was running low on cash like my friends because I had this credit card.
2. No Rules to Follow
The great part about having a credit card on your own is that you are aware and fully responsible for handling that card. You have to make sure to pay your balance or make your payments before the due date or you’ll get charged a late fee. When I had this particular card, I knew that my mom held all the responsibility so it felt like I had total control over my spending. She didn’t give me any rules to follow.
3. No Consequences for Overspending
When you have your own credit card, you are again responsible for everything. There are consequences if you max out your credit card and charge more to it. You have the power to call the bank and ask for a credit limit increase, and if you fail to make payments, your credit score is affected. You could get into a ton of debt for overspending, however with a credit card that was my mom’s responsibility… there were zero consequences for overspending besides getting occasionally yelled at by my mom.
4. Ignorance of Cost of Living
Having this credit card made me so oblivious to how much gas was, what the going rate was for certain items like books, etc. I just forked up the credit card because it was at my mom’s mercy and I didn’t need to think twice about finding a better deal, using coupons, finding discounts, price matching, or going to the cheaper gas station. If I “needed” something, there was always a way to explain it to my mom.
5. It Encouraged Spending
When I was with my friends, they always had cash. Not me! I always had my credit card, so everyone would pay me cash and then I would put everything on the credit card. What I should have done was give the money to my mom since technically the cash was supposed to go back towards the credit card, however I kept the cash to myself! I even wanted to use the credit card in front of my friends because it made me feel so mature. It also made me feel like I always had money, even though I wasn’t supposed to be spending money. This actually taught me bad habits when I finally DID get my own credit card. Tsk tsk.
6. False Independence
The problem with having a credit card in which you are not the main account holder, creates a sense of false independence, especially for a teenager who has no clue about managing money. I didn’t have a steady job, and I didn’t even get to see the monthly statements. I had no idea what the interest rate was, what the penalties were, what the credit limit was, what protections the credit card offered me, and other knowledge gained from managing a credit card on my own.
There is definitely a way to teach kids about good spending behavior and other money management techniques, but if you’re going to get them a credit card by adding them as an authorized user, make sure to think ahead and come up with a plan as to how you want to manage the credit card with your child.
You can set up strict guidelines, go over a budget with them, list out the necessities that may only be purchased with this credit card (no shopping!), and have weekly or monthly meetings to show them what’s going on with the card. Talk about the statements, interest rates, what happens when you don’t pay on time, how credit is built, why we have credit scores, and the dangers of credit card fraud. Make sure that your child is aware of the consequences so that they fully understand what they are getting into.
There are so many lessons that I wish I was taught when I first got this credit card, because it would have (possibly) prevented some shopping problems I had when I finally opened up my own credit card.
Would you add your child as an authorized user to your credit card? If you don’t have children, would you do so?
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