From Piggy Bank to Plastic: Teaching Teens to be Credit and Debit Card Savvy
In the world of technology and digital payments, the traditional piggy bank may seem outdated. Cash allowances feel cumbersome, and teens crave the independence and convenience of plastic cards. While credit and debit cards can be powerful tools for financial learning, they also carry risks. Equipping teens with the knowledge and skills to navigate the realm of plastic is crucial for their financial future.
Before You Swipe: Important Training Tips
Open communication is the cornerstone of financial education. Hopefully you’ve been talking to your teen about money since they were small children, laying a solid financial foundation. If not, there’s still time. Be open with your teen about your values, goals, and expectations around money. Be honest about your own financial journey, the mistakes you've made, and the lessons you've learned. Hopefully they’ll learn from your experiences, and save themselves pain down the road.
Financial Literacy is a Journey
As your teen begins to use their card, continue to communicate. Address any questions or concerns they have promptly and openly. Since there’s a good chance your name is also on their card or account, any financial trouble they get into will come back to you, so be sure you’re talking through your teen’s decisions and addressing any concerns promptly
Setting Boundaries
Boundaries are meant to be guardrails, not prison bars (though it might feel that way to your teen!). Establish spending limits, due dates, and consequences for missed payments, but also explain the reasoning behind your guidelines.
You should also address some of the potential challenges your teen might face, including how to respond:
- Impulse purchases—impulsive spending can quickly lead to trouble with either overdraft fees or maxed out cards.
- Peer pressure to overspend—however cliché it might sound, peer pressure can have significant influence on your teen’s behavior.
- Online scams and phishing attempts—learning how to stay safe from fraudsters and protecting their financial information is a major milestone in their financial literacy journey.
- Losing a card—if their card is lost or stolen, they need to know to act quickly to report the loss.
Celebrate successes
Recognize responsible spending habits and positive financial decisions. Celebrating the good choices your teen makes will go a long way toward keeping those lines of communication open.
Learning from mistakes
Use mistakes as teaching opportunities, encouraging them to learn from their missteps and showing them how to recover responsibly. This is a good time to share your own money mistakes and how you corrected them.
Adjusting the training wheels
Gradually loosen restrictions as your teen demonstrates responsible behavior. Hopefully, by the time they’re ready to leave the nest, they’ll be well on their way to a financially sound future.
The Basics of Plastic Power
Credit cards are essentially short-term loans that allow you to borrow money up to a certain limit, with interest charged on unpaid balances. When teaching your teen, emphasize the importance of paying statements on time and in full. Use an online interest calculator to demonstrate how unpaid balances begin to balloon even when you’re making the minimum payment. This is also a good time to talk about credit scores, and what impact they’ll have on your teen’s future financial opportunities.
Debit cards, on the other hand, are linked to either your checking or savings account. Using a debit card to make a purchase spends your own money, debiting your account instantly. Discuss overdraft fees and how to avoid them with your teen, as well as the importance of tracking their spending. Online and mobile banking are great tools for this because you can see transactions in real-time and how they affect your balances.
Real-World Training: From Theory to Practice
You’ve had the talks, you’ve showed them the ropes, now it’s time to put it all into practice in the real world. Start with small, supervised debit card purchases to build trust and understanding.
Budgeting Basics
At its most basic level, a budget is simply a tool to make sure your expenditure doesn’t exceed your income. Does your teen have a reliable source of income, whether it’s an allowance or a part-time job? That’s the starting point. The goal is to keep their spending within that amount with realistic goals. If you haven’t already, this is an excellent time to talk about saving up for big purchases, and how that will affect their other spending.
Track Expenses
Online banking and our mobile banking app are a great way to track debit card transactions, because they show up in real time.
Needs vs. Wants
Teach your teen to consider the “why” behind the purchases they make. Thoughtful decision making and the ability to distinguish between “I want this” and “I need this” will go a long way toward teaching them to spend responsibly.
Rewards for Good Behavior?
It’s always nice to get rewarded. Many cards offer rewards to incentivize their use, and while you don’t want to encourage reckless spending just to rack up rewards points, earning cash back or travel points is a nice perk to reward responsible card use.
Building Credit Smarts: The Long Game
When it comes to choosing a card for your teen, you have a number of options that keep you firmly in the driver’s seat while they’re learning. You could consider prepaid debit cards, secured credit cards, or student credit cards as initial options. Some credit cards will let you add a dependent as a joint account holder, which helps build their credit while keeping their financial forays firmly under your control.
For more financially mature teens, you could choose a more hands-off approach. While this gives them more freedom, it also opens the door to more significant damage to their credit score—and future financial opportunities—if their spending gets out of control.
Be sure to explain to your teen the importance of credit scores and how responsible card use builds good credit. Emphasize the crucial role of making payments on time and avoiding late fees, as well as keeping credit card balances low compared to credit limits to maintain a good credit utilization ratio.
Discuss the dangers of overspending and accumulating high-interest debt. Encourage teens to check their credit reports regularly for errors or suspicious activity.
Early Money Savvy Opens Doors
These financial discussions are not conversations you need to have all at once, but gradually equipping teens with financial literacy is an invaluable gift. It empowers them with independence, builds their financial confidence, and prepares them for a lifetime of sound financial decisions. Take the leap and empower your teen with responsible card use, setting them on the path to financial success.
Additional Resources:
You’ll find additional financial literacy resources in our library. You can also check out the following websites that offer financial literacy resources:
