5 Crucial Lessons Teens Can Learn About Credit Cards
Teaching your teens important lessons early on is important and this holds especially true for financial lessons. Teach your children about credit cards and good financial behavior before they learn half-baked information from their friends and the internet.
Here are the 5 crucial lessons teens need to be taught about credit cards:
Lesson #1: It’s not your money
The first and the most important lesson to teach your teens about a credit card is that it’s not their money. This might seem obvious to you, but you’d be surprised at the kind of notions children can have about money.
Explain to them that when they are using a credit card, they are borrowing money and that borrowing money comes at a cost called interest. Make sure they understand that they have to pay back the money and that the longer they take to do so, the more it is going to cost them.
Lesson #2: You should not rely on a credit card
This is where you need to explain to your teens about the difference between a debit card and a credit card.
They might have seen you make most purchases with plastic money, confusing the two cards.
Let them know that their bank account holds the money they have already earned and the way to make use of it is by using a debit card.
They should understand that their first pick should be spending what they have earned and that relying on a credit card for basic things like food and commute is not good financial behavior.
Lesson #3: There’s a limit on how much you can spend
Explain the concept of credit limit on credit cards to your teens. Highlight the point that just because they are authorized to spend a certain amount doesn’t mean they should spend it all.
Remember to tell them that 30% utilization rate is ideal and they should not cross that limit so as to maintain a good credit score.
Lesson #4: You’re being watched and graded
Explain the concept of a credit score to them as simply as possible.
For instance, tell them that just like their exam paper is graded by their teacher and counts towards their final percentage, every credit move – how much credit they utilize, how late they make their payments, how many times they default – counts towards their credit score.
Let them know that just like their board percentage determines which college they get into, their credit score will determine several important things in their future like whether or not they get approved for loans – education, home, car – and at what terms.
How they use their credit card now will have a significant impact on their future.
Lesson #5: Don’t be influenced and don’t miss payments
Getting some sort of financial independence is a very empowering experience for teens but also a first.
Being influenced by ads online or buying something out of peer pressure wouldn’t be uncommon.
You have to explain it to them that letting such things influence their buying decisions will only come back to bite them later because they have to pay the bills and not their friends.
Follow this with the advise of not using their credit card for something they can’t afford.
Explain to them that their credit card issuer won’t be okay with them missing payments.
That unlike you or their teachers, issuers aren’t going to be patient or understanding and will charge fees.
The best way to inculcate good financial behavior in your teens is by getting a credit card for them under your supervision.
This way you can keep a watch on what they’re doing and they get to learn in the best way – practical experience.
Apply for a credit card like the Bajaj Finserv RBL Bank SuperCard which has the benefits of 4 cards rolled into 1 – credit card, cash card, loan card and an EMI card. The credit card eligibility is basic and you can earn up to 20,000 reward points as a welcome gift.
Author Bio:
Gaurav khanna is an experienced financial advisor, digital marketer and writer who is well known for his ability to predict market trends. You can find Gaurav on Linkedin.
Category: Family Finances
