How to Teach A Teenager About Credit Cards

The question that many parents may ask with regards to their teenage children and finances is: how can I teach my teenager about using credit cards safely?

Many teenagers who are over 19 now have their own credit card, or use a credit card belonging to their parents, especially for online shopping.

Some teenagers may have linked a credit or debit card to their Apple iPhone, so that they can make contactless payments.

Credit cards for teens

Credit cards can be a very useful way to spread the cost of large items and enable teenagers to buy goods and services that they have not saved up for. However, it is important to be sure that you have a way of paying off your credit card debt – if not you could end up in debt.

How old do you have to be to get a credit card?

You have to be 18 to have a credit card in the UK. It's not possible to get a credit card if you're younger than this.

How old do you have to be to get a debit card in the UK?

Banks and building societies do offer debit cards to children from the age of 11 up to the age of 17. Some banks allow children to have a debit card, which they can use to take money out of an ATM or to buy items in shops and online. If they don't have enough money in their account immediately to pay for the item, the transaction will be declined. 

Rather than spending, a lot of young people want to know how to save money as a teenager and be clever with your cash. It's easy to overspend on credit cards and then find you're unable to pay off the debt when the credit card statement arrives, so that's why having a credit card under 18 in the UK isn't possible.

For this reason, a prepaid card might be an option if you want your teenager to know and understand how credit cards work. They will be able to understand the principles of a credit card without the risk of building up debt that they can't repay.

What should a credit card be used for?

Credit cards can be useful if you want to pay for something larger than you wouldn't be able to afford all in one go, such as a holiday or car.

When you're a teenager, having a credit card on which you buy small items on a regular basis, and then paying off your credit card bill in full at the end of each month can help to build up a picture of someone who is financial savvy and responsible. This will be in your favour if you need to apply for credit in the future.

How can I build a healthy credit report?

Once you're over 18 you can apply for a credit card. However, for a young person who has no credit history and cannot demonstrate that they can handle credit responsibly, getting your first credit card can be a challenge. The most important element in having a credit card application approved as a teen is to build a healthy credit report.

If you have never had a credit card before then you will probably have a low credit score, even if you have never been in debt or had money problems. This is because your credit score is based on evidence of how you have handled credit in the past. If you have never used any form of credit, a potential lender does not know whether you will be responsible with a new credit card.

However, there are ways to improve your credit rating, and these include getting on the electoral register, putting your name on more of the household bills, open a mobile phone contract instead of pay as you go, and clear your outstanding debts.

Should I avoid building up debt on a credit card?

It's important not to build up too much debt on a credit card as the interest and charges will mount up and a small debt could turn quite quickly into a large one.

A credit card is a powerful financial tool. Adults appreciate that power but also understand the dangers involved in credit card use. That is why if you are going to teach your teenager about credit cards it is important to stress that credit needs to be handled wisely.

If a teenager is struggling to get approved for a credit card in the normal way, they could consider applying for a Credit builder Credit card.

Why do I need to teach my teen about using credit cards?

Because parents are acutely aware of the danger of debt build-up, most are reluctant to allow their teenagers to begin using credit cards.

The problem with this approach is that a young person who has absolutely no experience using credit, may abuse a credit card when he/she turns 18 and can legally obtain one.

Fortunately, there are ways to begin teaching your teenager about credit card use while limiting the financial risk. Here are four great ways to help young people learn how to handle credit.

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1. Start your child with a prepaid card

This is a card that you load with a sum of money (not actually a credit card) that can then be used for purchases. When the original amount is exhausted, you reload the card.

This provides your teenager with the experience of using plastic for purchases without the risk associated with credit cards.

2. Educate your teenager on credit card use

Before you introduce your teenager to credit card use, show him or her a monthly statement.

Point out the important pieces of information like the balance, interest rate, minimum payment, and the payment due date.

3. Tell your teenager about debt and repayment

Emphasise that it is advisable to pay off the balance every month and explain the consequences of carrying a large balance and how debt can quickly mount up.

4. Teach your teenager about credit limits

You should also teach your teen the importance of having a spending plan, what interest rates mean and why it is important to have a health credit ratings.

That way, when your teenager progresses from having a debit card to having a credit card when they are 18, they will be used to using plastic and will be familiar with the benefits and charges of credit cards in the UK.