Being a parent means teaching your kids valuable skills when they’re young. How to tie their own shoes, how to drive a car and, eventually, how to file their own taxes are all teaching moments. Some of these lessons are easier to teach (and learn). Others—like managing a credit card account—are a little more complicated.
Financial education is an important part of being successful in life. Budgeting properly and managing credit responsibly can be some of the biggest hurdles in dealing with personal finances. Your high school student may not need a credit card right now and may not even have a credit history. But these credit card tips can equip your teen to use one responsibly when the time comes.
- Don’t think of a credit card as free money. When someone makes purchases with a credit card, they’re borrowing money and agreeing to pay it back. If they can’t afford that new pair of shoes today, it’s unlikely they’ll be able to afford them later. A good rule to follow—don’t charge anything you can’t pay back now. Doing this will help you avoid dealing with the consequences of late payments.
- You can build your credit score with a credit card. Credit scores can rise when a credit card is used responsibly, and that can benefit a teen in the future. Young people may not be thinking about their financial future now, but they’ll still want to get into proper money management habits early. They’ll need good credit to finance a car or house. And, many employers and landlords will check your credit before offering you a job or lease, making good credit even more important.
- The longer it takes to pay off your credit card bill, the more you’re paying. Making just the minimum monthly payment means your teen is probably paying interest. Ask your student, if you bought a shirt today, would you rather pay $25 for it now? Or, are you ok paying $29 for it over time? Minimum payments can make even reasonable purchases more expensive over time.
- Read the fine print. A credit card is a contract between the cardholder and their lender. Walk teens through the terminology they may find in a credit card application. They should know who a co-signer is, what the annual fee is, what the interest rate is and what credit utilization is. That teeny, tiny print is where they’ll find the ins and outs of the card.
- Set guidelines. Before getting a credit card, discuss the specific purchases and payments your teen’s credit card should be used for. And, set a cap on spending.
- Pay on time—all the time. Paying your credit card bill on time every month is a must. Have your teen set up text alerts from their financial institution to be notified of upcoming due dates.
If your teen is ready for a credit card, but you’re worried they may overspend, you can always get a card with a low credit limit. They can also think about applying for a secured credit card as their very first credit card. Secured cards allow a borrower to put up collateral in the form of a savings account and borrow against the deposit. This is a great way for minors to build solid credit habits with credit card issuers. Some secured cards, like Navy Federal’s nRewards® Secured card, offer rewards points for purchases. Points can be redeemed for gift cards, merchandise and everyone’s favorite—cash.
You can also add your teen as an authorized user on your own credit card. Authorized users receive new cards with their own unique card numbers and can make purchases on the account. The primary cardholder can earn rewards for their teens’ purchases, set spending limits on all cards and track spending via mobile and online banking. Account performance is typically reported in all the account holders’ and authorized users’ names to credit bureaus. So if your teen or college student uses the card responsibly, it may help them build credit and establish a solid credit report.
Use this opportunity to brush up on your own credit card spending skills! Continuous learning will help you continue to have these types of conversations with your kids.
This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.