02-Jun-2017 written by : FSI-Team
Parenting is like a tight rope walk where the parents continuously need to strike a balance between various exposures/experiences and guidance provided to the child. While under exposure may not help the child to gain required experience, over exposure may also lead to complications, since kids are impressionable.
Financial management is one of the most important teachings that any individual needs to learn. An early age induction into this is only going to help the child as and when his own income starts. A supplementary credit card is possibly the safest way for introducing the child to the world of credit and finance. But will your child be able to handle this card effectively, what should you do to introduce him to the instrument but yet restrict and limit the exposure are a few questions that you need to address before you take the plunge?
Let us first understand what is a supplementary card? Also called the add-on card, this is an extension of the existing credit limit to any family member. The nominated member of family gets a separate plastic and can use it just like any other credit card. One thing to be noted here is that the existing limit gets shared by both primary and supplementary card holders. Say for example, the primary card holder has a limit of Rs 100,000 and has extended one supplementary card. If the supplementary card holder spends Rs 10,000 the available credit limit shall be Rs 90,000 that can be used by both or either card holders. This card can be given to anyone above the age of 18 years.
Why should a card be given in the first place? Apart from introducing the child to the concept of credit, which all of us need in today's day and age that would help him lifelong; there are other factors as well that augment the idea. Safety of money is the first. In case of any emergency the plastic money can come handy. Second, if the child loses cash, there is no chance of it coming back. However, a lost card can always be blocked and replaced.
A few factors that one can consider at the time of getting the supplementary card issued.
Restrict the usage by assigning an upper limit: This could be done through the simple process either at the time of application or by giving a call to the service center post issuance of the card. This will ensure that the child is not able to spend beyond the limit which in turn will facilitate your ability to manage the finances more effectively. In case the spent is not restricted, an over spend may lead to spiraling outstanding and stress on finances. It can even further lead to delinquencies reflecting on your CIBIL report.
Check the account statement regularly: Do check the credit card account statement regularly to understand where is the child spending money. This will help you know how much money is actually being spent on each of the heads like food, clothes, entertainment etc. Not only will it give you an insight into the spending trends but will also help you in guiding the child where ever required.
Cash withdrawal on credit card: This can also be fully scrapped or can be limited. It is advisable to block it completely, since any cash withdrawal on credit card is highly expensive and also takes away the benefit of free credit period.
The supplementary card to your child can be a great tool to being the financial education, however, be watchful of spends and patterns since it can lead to financial and emotional complications.