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While you may take care of your child’s expenses for the first part of their life, eventually they’ll want to save money and make purchases of their own. Although some parents worry their teen will have spending problems, it’s still essential to teach them how to create responsible spending habits while they’re still under your roof.
For instance, a credit card can have a positive or negative impact on their finances, depending on what kind of spending habits they adopt. Wondering if a credit card is a good idea for your child and, if so, how you can use it to help them build their financial knowledge?
It can be tough to know when your child is ready for a credit card. After all, many teenagers will start spending left, right and centre as soon as they’re able to, especially considering how easy credit cards are to use. That said, this irresponsible behaviour may simply be due to their lack of financial know-how.
In fact, according to a Canadian Financial Capability survey conducted by the Financial Consumer Agency in 2019, “young people who speak with their families about financial matters tend to have a higher level of financial literacy”. So, theoretically, more knowledge leads to better financial decisions.
Before they start using one, make sure your child understands that credit cards are more than just a way to make cashless purchases. You must also explain how credit works and how it can benefit their living situation in the long run.
Actually, most children aren’t even aware of what their credit report, credit history, or credit score are. Nor do they know about the consequences of poor spending habits. Here are a few starter details you can teach your child about credit cards:
Age can play a major role in how easy it is for a child to understand financial responsibility and how to safely use credit. This is particularly true for teenagers, who can generally be broken down into two age groups:
The early days of high school are when many children want to start saving money and making trips to the mall. So, it’s a great time to help them open their first bank account and introduce them to their first debit card and/or prepaid credit card:
Debit cards & prepaid credit cards may not be right for your tween because:
Debit cards & prepaid credit cards may be beneficial for your tween because:
Despite the small gap between these two age groups, your teen’s spending habits may change significantly once they get their first job and become more independent. As such, their later teenage years are when it’s good to introduce them to credit cards:
A basic credit card may not be right for your teen because:
A basic credit card may be beneficial to your teen because:
In Canada, your teenager must be past the age of majority in their province or territory to qualify for a credit card without the help of a parent or guardian:
Although they can be eligible for all the perks of a traditional credit card, two safer products you want to teach your child about are secured credit cards and student credit cards, each of which comes with various benefits:
Find out if you can use your credit card through Google Pay in Canada.
If they’re of an appropriate age and you’ve taught them proper financial responsibility, your child shouldn’t have too much trouble qualifying for a credit card. However, there are a few important lessons they must learn before they apply, such as:
Credit cards come with plenty of benefits that help your child in the long run. However, irresponsible spending can definitely do them more harm than good. So, it’s important to educate them early and make sure they have enough financial literacy to get through life while avoiding as much high-interest debt and credit damage as possible.
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