Should your teen get a credit card? Here are some important things you should teach teens about credit cards before making this decision!
I remember when my parents helped me get my first credit card when I was in my late teens. I felt so grown up!
It seemed to me like a right of passage or something.
The truth is credit cards are everywhere. Your teenager will encounter them at some point.
Even if you choose to avoid getting a credit card for your teen there are several important things he should know about them.
Don’t wait until your kids are 18 to start having conversations about money, credit, debt, and savings.
Make sure that you have numerous conversations about money and credit throughout their pre-teen and teen years. Give lots of real life examples (by showing them) and discuss money with them all the time.
It’s kind of like the sex talk – you don’t want to just have one quick conversation and be done – you should have ongoing conversations about love, relationships, sex, etc. – the same with money lessons.
Here are some important things your teens should know about credit cards – even if they don’t get one for a while.
- How to Teach Kids to Save Money
- Financial Literacy for Kids
- Teaching Teens about Money: 11 tips
- Money Lessons for Kids: Ideas for Each Age from Toddlers to Teens
Know the difference between a debit and credit card
The first thing that your kids should understand is the difference between debit and credit cards.
They need to know that:
- a debit card takes money immediately out of your checking account
- a credit card is a loan – this means you buy now and owe money to the credit card company later
Before they get a credit card, your kids should know how to handle a debit card and also how to manage a checking account well.
What to Teach Teens about Debit Cards
When talking about debit cards, your kids need to know:
- how much is in their checking account – to avoid an overdrawn account
- how to regularly check the balance online
- that they can use ATM to withdraw cash, but they can only take out as much as is in the account (thus the need to regularly check the balance and know what is in the account)
What to Teach Teens about Credit Cards
Many kids seem to think a credit card is free money!
Here are some things you need to emphasize.
1.Credit cards are not free money.
When you purchase an item, you are simply borrowing money from the credit card company to pay for the item.
2. Only charge what you can pay back.
This means you need to have a clear understanding of your income, savings, and budget in order to understand if you will be able to pay it back.
3. You must pay the minimum amount due each month.
At the very least, you must pay the minimum amount each month (or you will have trouble with your credit score and the card company).
Ideally, you should pay the entire balance every month (so you don’t pay more for the item than it’s worth through the monthly fees).
4. You should understand how credit cards affect your credit score.
If you want to get a loan later (to buy a car or a house, for example), then loan companies want to know how you handle money.
If your credit score is low (due to missed payments), then it may affect if you are approved for a loan and/or how much your monthly payments will be.
5. Bad credit mistakes can stay with you a long time.
Making serious mistakes with credit cards at a young age can stay on your record a long time and could make it difficult for your teen to get a job, rent an apartment, or qualify for a loan later on.
6. Use your credit card to make wise (and very few) important purchases.
In other words, don’t rely on it to purchase things. Your teen should learn to pay cash for most items. If they do use a credit card, it needs to be for a rare, important purchase.
This also might be a great time to chat with your kids about wants vs. needs.
- Yes, you need a place to live, but not the most expensive apartment.
- No, a daily coffee from Starbucks is not a need.
- Yes, you should definitely keep a budget so you keep track of how much you are spending on wants instead of needs.
Some practical, realistic tips:
The best thing to do is take them shopping and show them!
Go use a debit card at the store, keep the receipt (with the debit charges shown on it), and then go home and show them the account online and how the money has already been taken from their account.
Next, go make a purchase with a credit card, keep the receipt (with the credit charges on it), and show them the statement when it comes. Make sure to explain the interest rate and why it’s best that they don’t carry a balance (then you don’t pay more for a purchase than it’s worth).
Finally, comes the big question…
Should you let your teen get a credit card?
My parents helped me get a credit card when I was in my late teens. It had a low balance of $1000 (and it still does and I still have it!).
They talked with me about important purchases, how to pay off the balance each month to avoid the fees, and knew I was responsible enough to be mindful of it.
Before getting a credit card
Your teen should demonstrate responsibility in a few areas before you help them get a credit card.
Your teenager should:
- Make and keep to a budget (for a few months at least).
- Have a checking account and a debit card, and be able to balance them and use them responsibly.
- knowing how to write checks
- balancing the checking account monthly
- knowing balance all the time (particularly before making a purchase)
- Be upfront and transparent with all of the purchases each month (and go over the statement with you).
If you do decide to help your teen get a credit card, be sure that he or she understands all the lesson above and set clear boundaries with your teen.
Ultimately you know your teen best and should have a good understanding of how responsible they are. Plus, you will have frequent conversations about money throughout the year to make sure your teen understands the basic concepts and how to be responsible with money.
Here are some suggestions for possible boundaries to set with your teen:
- Talk about what they will purchase each month. In particular, what is an example of an emergency purchase?
- Tell them you will look over their statement with them each month
- Have a card with a low limit
- When you discuss the statements, you will talk about each purchase and the monthly interest rate.
- Have frequent on-going conversations about money and credit
Reinforce each of these lessons over and over until they sink in.
Unfortunately, I think that most schools do not do a great job of teaching kids financial responsibility. Do not assume that schools will teach your teens about credit cards and how to use them responsibly. Make sure you go through these important tips so they understand credit cards and how to manage them and use them responsibly. What do you think about teenagers getting credit cards? What other points have you included in your discussions with your teens about credit?