Parent's Guide to Managing a Child's Debt

What scares most parents most is letting go. It’s not just about the emotions of letting go, it’s about taking a risk. And there are plenty of risks.

The first time you let your child drive your car, you are worried about having to pick her up from the hospital and the car from a ditch.

The first time you let your child stay alone at home, you have visions of what your insurance policy does and doesn't cover.

The first time you let your child use your credit card you…what?!? You owe how much!?

Sooner or later, your children have to use their wings. And the only way to use one's wings is to fly. It would be nice if they could learn it all before taking the car, the house or the credit cards for a test drive - just as it would have been great to know how to parent before having kids. But life doesn't work that way.

So it helps to know what is your responsibility as a parent when teaching your kids about credit and debt. If you think your child might be ready for his first credit card experience, read on…

Often the first step a parent makes is to make their child an “authorized user”. This means that the child (teenager) is allowed to use your credit card, to swipe it or insert it in the machine. To rack up charges.

Before adding the child to the card, make sure you have “the talk” with him. No, not the birds and the bees talk. The dollars and common sense talk. Make sure to cover:

- Watch your spending. Don’t spend more than you can afford to pay that very same month.
- You expect him to pay his expenses down in full at the end of each month.
- Report to you immediately if there is any issue, no matter how small.

Remember that you are still responsible for the card and for any debt racked up. If the card has a red flag on it, that is your concern. If it is lost, that is obviously your concern. And paying off the expenses charged to it is 100% your concern.

At the end of the day, you are responsible for charges on your credit card.

What about co-signing a loan? This might come a little later than the credit card, but many parents find themselves helping out children who have not yet built a credit history of their own. This allows the child to qualify for a lower rate or indeed for a loan they might not be able to obtain on their own at all.


If you follow this route, you want to make sure that your teenager understands the rules associated with the credit card use. He or she should pay of his or her own charges each month, and be careful about spending.

It's vital that you are sure that your teen understands the importance of responsible credit card use because you will be on the hook for any charges made. The credit card account is still yours, and that means you are ultimately responsible for any debt that is racked up on that card. You will have to pay it back, and it will affect your credit score.

As with the authorized user on the credit card, you are 100 percent liable for the debt on the loan you co-sign. If your child doesn’t or can’t make payments, you, as co-signer, will have to. Many people don’t realize this but stop and think about it: why do you think the bank is will to extend a loan or a batter rate to your child with your signature? Exactly.

Because they now have you to go after for the debt. And this loan will be part of your financial record and you might not be able to qualify for another loan while this one is outstanding – even if payments are proceeding as planned.

Just remember that any financial commitment you take on to help your child is still a financial commitment you take on.

Drew Cassels writes for Credit Cards Canada, which offers a selection of Canadian instant approval credit cards from which to choose.