5 things to consider before giving your teen a credit card
Is your teenage son or daughter badgering you for a credit card? Here are 5 tips to help them on the road to independence.
Is your teen of legal age?
In Canada, the primary credit cardholder must be of legal age.
If your child is a minor, you will have to co-sign the credit card application.
This means that you are responsible for the card. Should your teen accumulate credit card debt, this could tarnish your own credit rating.
Think carefully before letting your teen loose with plastic money!
What about a prepaid credit card?
This alternative gives greater protection against spending blitzes and racking up debt.
It allows you to monitor your child’s credit card management skills. If all goes well, you could then consent to them having their own credit card.
1. Why do they want a credit card?
Ask them. It might seem childishly obvious, but it’s important to find out the motivation behind the hankering after this piece of plastic.
The question is all the more relevant if you’ve noticed that money seems to burn a hole in your teen’s pocket.
Owning a credit card comes with responsibilities. Failing to pay their credit card bill on time can jeopardize your child’s credit rating and make it harder (if not impossible) to borrow money later on, like for buying a car or a house for example.
This is a good time for a candid conversation about financial responsibility and not the time to cave in to the argument that “all my friends have got one.”
2. Credit card statements 101
Whether they come by email or regular mail, it is important that credit card statements hold no mystery for your young cardholder.
Your teen will no doubt be a rookie when it comes to using financial services, so you should explain each concept in simple terms. Don’t expect them to understand a credit card statement.
Also stress the importance of checking the statement every month to make sure there are no errors.
3. Let the figures talk
There is no need to overwhelm your teen with graphs and formulas to explain how compound interest charges are calculated if they don’t pay their credit card on time.
An interest rate calculator quickly simulates the amount that would be owed when only the minimum amount is paid off, and how long it would take to bring the balance down to zero.
4. Stay alert for identity theft
Warn your teen about the risks of identity theft and how to avoid becoming a victim.
Emphasize the importance of not giving their credit card number to just anyone and of making online purchases only on secure sites.
5. Shop around
We are bombarded with attractive offers convincing us why we would should choose one credit card over another.
Before you begin sifting through the plethora of offers, start by having your teen list needs and conditions in order of priority. For example, is finding the best interest rate important? Is the flexibility of the credit card issuer a factor? Is it essential to choose a card that is accepted by all retailers?
Credit card comparison sites are useful and offer comparisons based on different criteria.
Note: This blog post is provided for information purposes only. It is not a substitute for professional legal, financial or fiscal advice. For advice specific to your personal situation, always speak with your financial advisor. SSQ cannot be held responsible for any decision made as a result of reading this blog post.