Forget the debate about getting your teenager the latest iPhone; what if they ask for a credit card?
Before you say no, a recent study from the Federal Reserve Bank of Richmond found that those under 21 are substantially less likely to go 90 days past due or worse, and young borrowers are among the least likely to default on a credit card.
"There is evidence that young people are actually better at managing their credit than those of us in our 40s," says credit expert John Ulzheimer of Atlanta.
Should you rush to sign your kid up for a credit card?
Educational opportunity: It's great for your children to build a credit report and credit score early in life, but don't expect them to learn money management by osmosis. "You didn't just toss them the car keys; teach them to use credit," says Ulzheimer. Explain how credit works and the consequences.
Cards can be dangerous: "Without proper understanding, your child can quickly get into trouble by running up a balance. . . . mistakes can impact the family," says Mark Snyder, a financial adviser in Medford.
Set boundaries: If you get a card, have a $500 to $1,000 limit. Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling in Washington, D.C., likes to see children added as authorized users on their parents' card, instead of parents co-signing for a card. Parents can quickly and easily remove them if they go outside the established boundaries. "A little tough love, applied early, can serve them well for years."