Discussing Credit Cards with Kids
Posted January 25th, 2009 and last modified November 22nd, 2011
Featured Student Credit Card
The ANZ First Visa is a good credit card for kids to start on to learn how to manage a credit card responsibly. It has a low minimum income requirement of $15,000 which is perfect for teenagers working part time. Also with a the option of a low credit limit of $1000 the credit cardholder can always remain 100% in control of their finances.
- $30 annual fee
- 0% p.a. for 3 months (reverts to 19.24% p.a.) on purchases
- 0% p.a. for 3 months on balance transfers
- Cash Advance Rate of 20.99% p.a.
- 44 days interest free
- Minimum Income Requirement of $15,000 p.a.
- Visa Entertainment gives you access to special events, exclusive merchandise packages and home entertainment products
While children are educated about important adult issues such as sexual health, their curriculum is practically void of personal finance, let alone credit cards.
While experience is the best teacher, it’s at least a positive start to get off on the right foot when entering the ‘real’ world, and minimize ‘learning from mistakes’.
If their school won’t do it, it’s time to step in and take the reigns yourself. It doesn’t have to be a well-planned and strenuous teaching scheme, at most it should only take 10 or 15 minutes to educate.
Ask what they know first
The most common perception for children and credit cards is that credit cards are carried ‘when you have too much money to carry in your wallet’. Another common misconception is that purchases you make with your plastic doesn’t have to be repaid later. Out of curiosity, I myself asked my 9 year old nephew “Do you know why do people use credit cards?” after some initial thought, he responded with:
- “For when you’ve ran out of money?”š “.
While amusing, it gives an insight into how limited their knowledge is. While it isn’t of any life-relevance for a 9 year old to know how credit cards truly work, finance should be treated as any other influential factor, such as violence, driving and manners. Set a good example early on, and it will more then likely rub off on them as they mature.
Use a Relatable Example
Use a school scenario if necessary. If one day one of your friends had some chocolate and you had nothing, they could give you 4 pieces as a favour. The next day you bring 5 pieces to give to him – an extra piece to say ‘Thank you for sharing your chocolate with me’. Explain how in the adult world, credit cards are lent to you from banks, and any money you spend on them must be repaid, plus a little extra. Mention that you can get into a lot of trouble if you don’t give back what you’ve spent, and won’t be allowed to use your credit card again.
It isn’t necessary to get into annual fees, ancillary charges, grace periods and reward programs at this point.
When They’ve Aged into Adolescence
At this stage, teenagers should know the basics of credit cards – anything you buy will ultimately have to be paid back. A startling study among American college student found that 80% of students with credit card debt weren’t even employed. Australians aren’t as subject to credit bombardment as the United States when they begin going to university. Regardless, the concept of easy money without the guilt of paying back the parents is in no doubt an attractive feature.
Some believe the best avenue of education is to entrust their teen with a credit card. However this is certainly not recommended – would you intentionally give liquor to your teenager and teach them how to drink, in order to be a responsible drinker for the future? The point is, if you give them the impression that it’s a lax subject, they won’t take it as seriously.
Simply teach them the value of saying no to credit – explain that you’ll be there for financial support if necessary. While there will be those who will respect credit regardless of your influence and how you approach it, there are methods which yield higher success rates than others.
If your child simply wants a credit card for the access privilege (bookings, online purchases etc), then recommend a debit card to them. Two of Australia’s most popular and quality debit cards are available here.
We wish you the best of luck becoming firm financial role models for your children, and would love to hear any questions, comments or stories from you.
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