Teenagers & Credit Cards

Educate your teens on the pros and cons of credit card use to prepare them for the world of plastic.

Teenagers love to spend money. Credit card companies have taken notice and are doing everything to lure them in. Although some laws prevent your kids from taking out credit cards without your permission, that doesn’t stop them from instantly asking you to get them their own card. Ninety percent of Canadians over 18 have a credit card as of 2022.

Credit card companies have been pursuing teenagers and designing credit cards so they can ‘learn’ about the credit system. Although most teenagers don’t fully understand the repercussions of using a credit card and the impact it can have on their future financial situations, more teens are working and spending their own money. Credit card companies believe they have hit the jackpot.

On the other side of the coin, an important consideration of a credit score is the length of credit history. The longer you have good credit, the better your score. A better score translates into better interest rates. So, starting credit history earlier does have its advantages, but only if the person is ready for the responsibility.

Current trends for Gen Z finances

The current trends show that Gen Z has the highest delinquency rates among all generations. The delinquency rate has increased by 26 basis points YoY (year on year) to 2.74% as of Q4 2024. They are the fastest-growing segment for credit participation (up 29%), and they’re diversifying their debt beyond credit cards. They’re more in debt and accumulating more debt at a faster rate than Millennials at a similar (even earlier) age. This is because Gen Z faces higher inflation and cost of living, and has lower earnings than Millennials did at a similar age.

That means it’s very important for parents to help teenagers understand the cost of credit and how to use it wisely, early. Parents who share a credit card with their children report it’s easier to manage their kids’ purchases. The following tips can help you give your teens a good start with credit.

Tip No. 1: Get your teen a chequing account FIRST to help them master the basics.

In addition to providing you with the monitoring power over the account, a chequing account will provide your teens with hands-on financial training. Teenagers can learn how to balance their budget and track spending. This introductory course is crucial in preparing them for debit and credit cards. Teach them key banking terms. Good banking practices will lead to good credit practices.

Tip No. 2: Teach them to keep their cards safe and secret PINs hidden.

All cards, debit or credit, have secret PINs. It’s important to keep your PIN secret and not disclose it to anyone. Go over purchases and statements with a fine-tooth comb to make sure all purchases are authorized and that hackers have not gotten hold of your card.

If you set up a chequing account for your teenager, they may have access to an ATM card. They must be taught that:

An ATM card is cash and should be treated as such.
Although the card may look and feel like a credit card, money is coming directly out of your checking account.
Stolen or lost credit or ATM cards should be reported immediately to the credit card company or the bank. 

Tip No. 3: Once the training wheels are off, get a retail store or local bank credit card.

Once your teens have mastered the basics of keeping track of money in the bank, a credit card can be introduced. Parents can apply for a joint credit card at a retail store or local bank. Make it clear that it’s not free money, and it’s ideal to pay it off in full every month. Financial experts recommend a credit limit of $500 for teens starting out with their first credit card. It helps them manage their payments and use credit reasonably.

Teach them that not paying off the card in full means paying it back with interest. Give them a lesson on interest rates and how interest is calculated. Emphasize the importance of paying off the balance in full as much as possible. Encourage your teens to always read and understand the terms of their card. Key and important messages may be buried in there.

While discussing interest rates, also convey that interest can be good when it comes to a savings account because you get more money. However, paying interest on a credit card means you will have to pay more money.

Tip No. 4: Make sure they understand the purpose of the credit card.

Your teen should know the card is reserved for emergencies or that it’s for specific purposes, such as school items, clothes, or shoes. Set a dollar amount for how much should be spent on each purpose. Surpassing that limit could be grounds for punishment or confiscation of the card. Going over the credit limit is a telltale sign that your teen isn’t ready for credit cards. If you still want them to have access to the card, ask your bank to lower the limit so they cannot spend beyond that amount.

Tip No. 5: Teach them that just because it’s offered doesn’t mean you have to accept it.

As your child turns 18 or even before their 18th birthday, credit card offers will bombard your mailbox. Plus, because teens can apply for their own card on their 18th birthday, parents should be especially vigilant. If you or your teen decides to accept an offer and apply, be sure that the credit card issuer fully discloses federal laws to your teen. Banks are required to reveal costs, such as annual fees and finance charges. This helps teens avoid debt traps for new credit users that have caused so many problems in the past.

Thankfully, you cannot get a credit card till you are 18 or 19 years old (depending on the province). Under the legal age, teens can get supplementary credit cards on their parents’ accounts. To do this, you can set up your teen as an authorized user on your account. You can set a limit on these cards as well. 

Tip No. 6: Explain the importance of a good credit history.

Your teen’s credit score determines their creditworthiness. Teenagers should be taught the importance of a credit score and the repercussions of a bad credit history. 

The federal government mandates that everyone can get a free credit report annually. So, teach your teens how to pull their reports from Equifax and TransUnion and how to interpret the results. Check for errors and report any inaccuracies to the credit bureaus. Teach them that paying off your credit card in full every month will boost credit scores and help build a good credit history. 

Tip No. 7: Have them pick up the tab.

Typically, teens are more lax with spending their money and show more restraint when spending theirs. If your teens have a job or get an allowance, a great way to teach them responsibility is to have them contribute towards paying off full balances on their credit cards. Doing so will teach them how to appreciate the value of money. This is, again, a good place to emphasize that paying only part of the balance will impact credit and add on interest, too.

Tip No. 8: The internet, teens and credit cards can be an unsettling combination.

The free range of the Internet combined with the purchasing convenience of a credit card can be a recipe for disaster. Monitor the sites your kids visit and the orders they place online. Teach them how to discern credible sites, as hackers are constantly lurking in the shadows of the Internet. Always go over the credit card statements with your teens.

Tip No. 9: Teach them to delay instant gratification

Today, owning a credit card is seen as a necessity or even a rite of passage. Our teens are bombarded with messages compelling them to buy now, pay later. Teach your teens to delay that gratification and encourage them to save up to buy what they need. If they can’t afford to pay cash, then they can’t afford it! Remember, your teens are watching you, so use your own credit wisely.

New features: focus on intentional spending

In recent years, several new features and types of credit cards have become available for teens. They emphasize financial education, conscious spending, and good money habits. Cards like the Mydoh Smart Cash Card ($0 monthly fee) and the KOHO Essential Card ($48 annual fee) are prepaid cards available in Canada. Mydoh offers parental monitoring, and you can pay them for chores directly on it! The KOHO card provides cashback and allows them to earn interest. It also has a savings goal feature.

There are student-focused credit cards for when your teen goes to college. There are many different features across cards, so pick one that fits their lifestyle and goals. Some provide points, cashback, spending limits/controls, credit-building features, and app integration. There are also retail-oriented cards if your teen enjoys shopping! 

Save your teens from future financial ruin

Have you or your teens gone “credit card wild” and need a way out of debt? If swiping has left you drowning in debt, call Consolidated Credit for help at (844)-402-3073. Our trained credit counsellors are standing by to take your call.