When your children's concept of pocket change involves actual change, helping them keep track of their money is pretty easy. But when they start needing serious coin to gas up a sports utility vehicle or travel abroad, you need more sophisticated financing alternatives like a credit card. Here are some options, along with what you need to know before you give your teen access to credit:
Your credit card
Pros: Adding your child as an authorized user should take a simple phone call, and the child will have her own card to use. You can usually get a separate accounting of their charges.
Cons: The card will have your credit limits. Plus, no restrictions will be imposed on spending. Also, U.S. cards do not always work in foreign countries. They often have high transaction fees abroad, especially for cash advances.
Bank account with ATM card
Pros: It may take an in-person visit to a bank to open up an account for a minor, but then you can link it to a parent's account to easily transfer funds. The ATM card makes it easy to get cash while traveling and can be used as a credit card. If you do not sign up for overdraft protection, transactions will be denied when funds are not available.
Cons: Beware that fees can rack up if the account does go negative or below a required minimum. Debit cards do not offer all the same consumer fraud protections as credit cards. They may incur overseas transaction or ATM service fees, and they require parental attention to keep adding funds.
Prepaid debit card
Pros: Getting one is easy, and most have slick mobile interfaces. As they are not linked to any bank account or credit line, there are fewer worries about overspending, loss or identity theft. Some cards, like Oink (www.oink.com/oinkcard), allow parents to restrict spending in certain categories, like alcohol.
Cons: Some prepaid cards come with lots of hidden fees just to access your own money. They do not help build a credit history.
Personal credit card
Pros: Building a credit score at 18 is smart. A typical newcomer does not start at zero, but rather at around 600, says Greg Lull, head of consumer insights at Credit Karma (www.creditkarma.com/). That is in the middle range between the top of 850 and the bottom of 300.
Cons: If your young adult is not ready to handle the responsibility, his credit score will drop, and he will build up debt. Most young adults bottom out at age 21 before turning things around, says Lull.