Credit cards for teenagers - is it a good idea?

Credit cards for teenagers - is it a good idea?

  • We are moving rapidly to a cashless society, so teaching our teenagers about managing money has evolved in recent years. 
  • We explore the benefits and pitfalls of credit cards for teenagers.
  • Exploring how a credit card used in a safe family environment could help teach young adults how to manage their finances better.

Boy learning about credit

Teaching their kids how to manage and understand money is something that many parents worry about. In the early years, you might start out with teaching them about earning money by doing chores around the house. And perhaps help them to split their money into spending and savings. But as your child becomes a teenager it can be difficult to know how, and when, to introduce them to the world of credit.

When used properly, credit cards can be a convenient way to pay. For years your child has likely watched you tap your credit card when you pay for goods in-store or seen you use it to make purchases online. They are easier than carrying cash and are accepted at millions of locations around the world. And with some cards, you are eligible for a variety of rewards.

While cash used to be king as a way to teach kids about money, as a society we have moved on. By 2022 it is predicted that less than 2% of all purchases will be cash payments – making Australia a virtually cashless society. So teaching our teenagers how to manage credit is more important than ever.  But when is the right time, if ever, for your teenager to get their first credit card?

What age can a teenager get a credit card?

Group of teenagers

In Australia, you need to be at least 18 years old to apply for a credit card directly in your name. This strict lending rule is in place to help protect young adults from accumulating too much debt when they might not be mature enough to take on the commitment. People under 18 would also rarely have the income needed to be able to service a line of credit, and are not old enough to enter into the legal contract involved when getting a credit card.

However, as a parent, you do have the ability to request an additional cardholder on your own credit card. There are many cards available on the market where the supplementary cardholder needs to be at least 16 years of age, although some do have a higher minimum age of 18. You as the parent remain 100% legally responsible for any expenses incurred on the card, but your teenager can use their card to make purchases. And you need to be aware that if card repayments are not handled responsibly, it could impact negatively on your own credit score.

If you are considering adding your teenager as a supplementary cardholder, start by looking for a credit card that offers free additional cardholders. Some cards will allow one free additional cardholder and others will allow more, or even unlimited additional cardholders.

What are the benefits of your teenager having a credit card?

As with most things when it comes to teaching your kids about money, by starting the financial lessons early you can end up with money-savvy kids. While it can be a bit nerve-racking to give your teenager unrestricted access to your credit card, there are potential benefits to taking this approach.

They will learn how to use credit responsibly

Teenager studying

As a parent, you will still have control over the account and can see how your teenager is using the card. This insight into how they are spending gives you the opportunity to set the foundations early for solid financial habits.

Under your guidance and with good communication between you both you can discuss how to make a credit card work effectively. Ask questions like how are they are going to pay off the card, when payments are due and how much interest is incurred, and explain why they should pay more than the minimum payment on the card.

They will have a better understanding of how interest works

Your teen may have been exposed to earning interest on a savings account as they have grown up, and so have seen how interest works from that perspective. With a credit card, it’s essential that they have a good understanding of interest charges as a borrower, and how both principal and interest payments need to be made each month. They need to realise that making only the minimum repayments could see them in debt for many years.

They will be better prepared to manage their own finances

Teenager learning about finances

Money management doesn’t form a huge part of the school curriculum here in Australia. So as your teen begins to transition into adulthood, they will need to know how to budget and manage debt.

The main way that a lot of us learn is by doing. And while mistakes may be made, by limiting the amount your teenager can have access to, and monitoring their spend, you will allow them to make small mistakes now rather than getting themselves into trouble later on.

How to decide if your teenager is ready for a credit card

Happy teenagers

Only you will know whether your teenager is ready to have a credit card (and whether you are ready too). You should ensure that they already have a solid foundation of financial experience before making such a move, and that you are in control of your own credit card to start with.

Are you paying off your card in full each month? Do you have a credit limit that is within your means? These are questions you should be asking yourself before considering adding your teen to your card.

You should ensure that your teen has the financial experience necessary to be responsible for their spending. Have they handled their own savings account before? Do they understand the concept of earning an income either from a part-time job or household chores? Have they saved up money before over a period of time to purchase a large ticket item?  Having them acquainted with some basic know-how when it comes to money is important before you hand over the plastic.

You also need to consider your child’s maturity level, which can vary greatly from kid to kid. What is their personality like around responsibility? Are they diligent enough to keep track of their spending?

Learning about credit with your guidance

Teenager being taught by family

While you still have your teen under your wing, teaching them about how to use a credit card responsibly can be an important life skill. Get them across some of the common pitfalls they may experience when using credit – such as how making only the minimum payment will see them paying a considerable amount of interest, and helping them to understand what will happen if they miss payments or go over the credit limit.

If you do decide that getting a credit card is the right move for your teenager to learn about financial management, then keep these final tips in mind.

  • Decide what your teen will use the card for.

  • Start with a small limit that they can learn how to manage well.

  • Read the fine print to understand the fees involved.

  • Be there to teach them as they get the experience first hand while they are still living at home.

Some basic cards to consider for your teen

If you are going to apply for a card as the primary cardholder, and make your teenager a supplementary cardholder (but in fact the only user of the card), here are some ‘no annual fee’ cards you might like to consider:

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