Why I Got My 5-Year-Old a Credit Card

Picture this: You're strolling through the toy aisle, and your 5-year-old is tugging at your sleeve, begging for the latest action figure. Instead of reaching for your wallet, you say, "Why don't you pay for it?" and hand them their very own credit card.

Sounds absurd, right? Well, not so fast. In an age where financial education is more important than ever, getting a credit card for your young one might just be the smartest parenting move you can make. Now, before you imagine a kindergartener recklessly swiping away at a store, let me clarify. I added my 5-year-old son as an authorized user on our Chase Sapphire Reserve®. That card comes with a lot of perks, but he doesn't actually use it -- it's all about setting him up for a brighter financial future.

Here are the pros and cons of getting your child a credit card by adding them as authorized users.

Benefits of adding kids as authorized users

You may already know that you can't apply for a credit card until you turn 18, and it's important to compare credit cards beforehand. But if you have a teen looking to rent an apartment on their own or take out a loan, for example, it can be difficult without a credit history. By making your child an authorized user on your credit card at a young age, you allow them to build a credit history.

As an authorized user, your child's credit report will reflect that account, with its history and details impacting their credit profile. This early start can lead to more favorable credit opportunities in the future, such as better terms and lower interest rates on mortgages, car leases, and loans.

While my son isn't swiping his credit card at the toy store, I could give him the card to use as he gets older. That would be a step in teaching him responsible finances, another benefit to having a credit card before turning 18.

There are perks for you as well. The expenditures made by your authorized user (aka your kid) accumulate rewards points and miles just as if you had made the purchases yourself.

Some financial institutions even allow authorized users to use these points. For instance, with Chase Ultimate Rewards, points can be transferred to the loyalty accounts of one authorized user within the same household. This can be particularly useful for boosting a child's airline points for award redemptions for that big post-grad trip.

Downsides of adding a child as an authorized user

Of course, while there are many positives to adding your child as an authorized user, there are also some downsides to consider. Firstly, be aware that some credit cards charge annual fees for adding authorized users, especially premium cards. We have to pay $75 a year to have my son as an authorized user. If your goal is just to teach your kids about credit or to build their credit history, choose a card that doesn't have extra fees for additional users.

Also, while most credit cards report the activities of authorized users to credit bureaus, it's not universal. This gets trickier with minors as banks vary in their age requirements for authorized users and how they report minors' activities. To effectively build your child's credit history, ensure you understand your card's specific reporting practices.

Also, most importantly, remember that any negative issues on your account could impact your authorized users, too. If you face financial difficulties, consider removing your children from the account to safeguard their credit histories.

Age requirements for authorized users

There's no set legal age for adding an authorized user to your credit card, so banks set their own age policies. These age requirements can vary, and the information here is based on reports, so it's always best to confirm with your credit card issuer directly.

Here's an overview of the reported age requirements for some well-known issuers:

• American Express: 13 years old
• Barclays: 13 years old
• Discover: 15 years old
• U.S. Bank: 16 years old
• Capital One: No specific minimum age
• Bank of America: No specific minimum age
• Chase: No specific minimum age
• Citi: No specific minimum age
• Wells Fargo: No specific minimum age

Remember, these are reported ages, and it's important to check with your credit card company for the most up-to-date information. You can usually add an authorized user easily online through your account or by calling the number on your card.

Giving a credit card to my son is more about planning for his future than present spending. It's a proactive approach to instill good credit habits early on, setting him up for better financial opportunities down the line.

While there are potential downsides, like fees and the need for vigilant credit management, the long-term benefits, such as building a solid credit history, outweigh them. It's a decision that demands careful consideration and ongoing oversight, but one that can be immensely beneficial for his financial literacy and future independence.