Choose the right card to fund your child's gap year
By UK CreditCards.com
If your child is about to jet off on a gap year, you might want to arm her with a credit card. As well as access to emergency funds, credit cards are often the only way to book hotels or car hire.
But before you get your gap-year traveller a card, make sure she knows the costs involved in using it.
Parents have several options when it comes to getting their children a card. They can add children as secondary cardholders on their own credit cards, encourage them to take out their own credit card or provide them with a prepaid card.
If you decide to add your child as a secondary cardholder on your account, know that only the registered account holder is responsible for paying the bill.
"Unless you explicitly trust them not to spend more than you can afford, giving them your own credit card is risky," says Jane Symonds, head of service delivery at the Money Advice Service.
Don't trust your kid? Consider a prepaid card.
"A prepaid card will avoid unexpected bills and allow you to agree on a spending limit," Symonds says. "They work like a normal debit card, but must have money on before use, and you'll need to check if the prepaid card is accepted where they are travelling."
If a prepaid card doesn't offer enough flexibility, another option, assuming your child is 18 or older, is for your child to get a credit card in his or her own name. In the long run, this may encourage your child to become more financially independent.
Before taking this step, however, a credit primer may be in order. Additional reminders during the gap year are also a good idea.
"Ensure their credit card bill is paid while they're away -- at least the minimum payments, although it's an even better idea to clear the balance in full each month, possibly by setting up a direct debit," Symonds says. "Whilst they are away, remind them to avoid taking out cash with credit card, as you're likely to be stuck paying [much higher]interest as well as charges."
While travelling the world, card fees may be the last thing on your child's mind -- but they can escalate the costs by a bundle over the course of a year overseas. Many credit cards come with foreign loading fees which can bump up the cost of using them abroad, but there are exceptions. For example, the Post Office MasterCard and the Halifax Clarity credit card offer fee-free use abroad.
Another thing your child should be aware of when using a credit card abroad is dynamic currency conversion. This is where the overseas retailer offers the option to pay in pounds sterling rather than the local currency. However, retailers offering this service earn money by padding the exchange rate. So emphasize to your child to always pay in the local currency -- and to check every receipt.
Before you let your children leave home with a credit card in hand, it's also a good idea to talk to them about card fraud.
Checking the credit card statement regularly can alert you to any fraudulent transactions, so set up internet banking so your child can check the statement online -- and make sure you have access as well, in case your child can't access a computer regularly.
Also make sure your offspring know they shouldn't let their card out of their sight. Wherever possible, they should lock it in the hotel safe or hide it somewhere in their luggage. In a restaurant or café, they should always ask for the payment terminal to be brought to them and should never leave the card behind the bar to run a tab.
Gap year travellers should also keep a written note of their credit card number and their card provider's emergency contact number. Make sure you keep a copy of this information with you back home as well -- so you can help out if trouble ensues.
See related: Four credit card problems that can ruin a holiday
Updated: 11 June 2013
- What to look for in a student credit card – Here's what to expect from a credit card specifically aimed at university students ...
- What borrowing options are best for graduates? – Without student loans, you may need a "grown-up" way of borrowing. Here are some options to choose from ...
- 4 credit tips for students – As students begin their time at university, they may be using credit for the first time. Here are four tips for students to keep in mind ...