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This is How a Credit Card Can Teach Teens About Debt

As older teenagers use the summer to prepare for the last year or two of high school, they’re starting to make plans for a future career. At this age, they’re picking high school courses based on their career path. They’re also starting to research post-secondary schools, tuition costs and whether they’ll need to rely on student loans or other forms of debt.

For parents, it’s an exciting and daunting time, filled with opportunities to help their teen prepare for the next stage of their life. Part of these preparations for adult life should include important lessons about debt.

According to Statistics Canada, students who discuss money matters with their parents once or twice a week score better on a financial literacy assessment compared to their peers who don’t. Clearly, parents have a significant role to play in how money smart teenagers are before they become independent adults.

One practical way for parents to start teaching their children about debt is to introduce a secured credit card. A secured credit card requires a security deposit to be made to the credit card provider. This deposit amount usually becomes your teen’s spending limit. If payments are missed, the provider can use the security deposit to cover the missing payment.

While credit cards come with inherent risks — high interest charges and spending temptations being two of them — parents can be a roadmap for a teenager’s healthy relationship with credit.Here are a few reasons why a secured credit card can help boost financial literacy.

A secured credit card can help create a positive credit history. Down the road, your teenager will be making bigger spending decisions — possibly financing a car, renting an apartment or applying for a mortgage. Part of preparing for this is to start building a credit history as soon as possible. The easiest way to do this once your child is of age of majority in Ontario is to get them on “credit card training wheels”.

As long as your teen makes monthly payments on time and keeps below their spending limit, a secured card is a great opportunity to build a credit history.

This article from Associated Press writer Virginia McGuire talks about the benefits and how to get this done, including making your teenage child an authorized user on an existing credit card.

A secured credit card helps a teen get comfortable using “digital money”. Increasingly, purchases and everyday banking transactions are done on the 5-inch screen of a smartphone, not in person. According to CreditCards.com, 85 per cent of Canadians used a mobile banking app to pay a bill in 2016. Even back in 2014, 23 per cent of Canadians didn’t think they would be carrying cash in 2024. Canada is turning to digital money more every day, and a secured credit card is a good introductory tool for teenagers.

Use credit cards as a teaching tool for larger loans. In her “8 Personal Finance Lessons Every Student Should Learn”, Financial Post columnist Erin Bury outlines some great tips for teenagers and young university students. The first one definitely applies to credit cards: always read the fine print.

Parents can use credit card statements as a teaching tool for their kids. Help them answer common debt questions like: Where can I find the interest rates on the statement? What does a balance transfer mean? How long would it take to pay off a balance with only minimum payments?

For teenagers, a credit card statement is one of the first pieces of financial paperwork they’ll come in contact with — as parents, you can help them decipher it.

Ultimately, parents can help with debt avoidance as teenagers start down the road to financial independence. Part of this is building credit history, getting used to digital money, and learning how loan language works — a credit card can help with this.

Do you have tips for parents trying to introduce their teenager to credit? Join the conversation on social media using the hashtags #BackToSchool, #DebtSolutions, and #UndeclaredMajor.



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