Credit cards can be valuable financial tools for young adults, offering benefits such as cash back rewards or points programs, deals on car rentals and hotel rooms, and built-in safety nets on many purchases that help with refunds or warranties. More importantly, credit cards are an excellent way to establish good credit—but only when they're used properly.
That's why it's important for parents to educate their children about responsible credit use well before they can apply for their first credit card. To help set your kids on the road to financial success, here are eight tips for teaching them valuable lessons about credit cards.
1. Start Early
With today's trend toward a cashless society, it's likely your children see you pay by credit more often than with cash. But they might not even realize you're spending money, viewing the card as a magic piece of plastic that gives you whatever you want. So, take the time to explain the basics of how credit cards work in an age-appropriate way.
Tell younger kids that the credit card company pays the store for you whenever you use the card to buy something, and at the end of the month, you must pay back the credit card company for all those purchases, or face a consequence.
With older children, you can explain the concepts of interest charges and credit scores (more on these below).
2. Compare Credit Scores to School Grades
Kids and teens are well aware that their school performance affects their grades, and that better grades offer them more opportunities—such as being able to participate in extracurricular activities or apply to better colleges.
Try to frame credit scores in a similar way: that spending only what they can afford and paying off their debts each month can lead to a better credit score, which can, in turn, improve their future prospects to get a car loan or land an apartment.
3. Review Credit Card Statements Together
Children often learn best with real-life examples, so break out your latest credit card statement, go through the different charges and explain credit card terms, such as balance, minimum payment, due date and interest. Point out the statement's “minimum payment warning"—which explains the cost of making only the minimum payments as opposed to paying off the balance in full—to illustrate how interest accumulates over time.
4. Talk About FOMO
The fear of missing out (or "FOMO") can lead to impulsive spending, especially for young adults who are more likely to spend time on social media and see images of friends or influencers traveling or sporting designer duds.
Remind your kids that when credit cards are used for FOMO instead of responsible spending, the repercussions of lasting interest payments can last for years.
5. Make It Personal
To bring home that point, the next time your child asks for an extravagant gift (iPhone, anyone?), look up the cost of the item and use a credit card payment calculator to see how long it would take to pay off the full amount on credit, but making the minimum payment only. (Spoiler: A $1,000 phone paid for on a credit card with an 18% APR and $25 minimum monthly payment would take more than five years to pay off, with about $540 in interest charges.)
6. Play Banker
If there's something your child wants to buy but doesn't have enough money for, consider giving them a small loan with the understanding that they'll pay you back (from their weekly allowance or part-time job) within the next month. That will simulate the process of using a credit card. To make it even more realistic, reward them with a bonus (to act as a credit card reward) if they pay on time, and charge extra if they're late.
7. Add Them as an Authorized User
To provide an actual trial run for teens (13+), you can add them to one of your existing credit cards as an authorized user for occasional purchases or emergencies. Known as “piggybacking," this approach is only advisable on a card with a low credit limit, to prevent kids from quickly racking up debt—which would hurt both of your credit histories.
If you go this route, it's essential to set clear boundaries and monitor your child's credit usage to ensure they understand the responsibilities that come with using a credit card. If they do make a mistake with purchasing something you didn't approve of, use it as a teaching moment—they'll get the hang of it eventually.
Another option (for those 18+) is a secured credit card. These are usually fairly easy to obtain through your bank or credit union. You or your child would deposit a few hundred dollars into an account to secure the card. After six months or a year of responsible use, the cardholder can usually get the deposit back, and the card will become unsecured.
8. Be a Financial Role Model
As with other life lessons, children tend to learn by following their parents' lead. Try to be a positive influence by modeling responsible credit card use and discussing your purchasing decisions with them. To encourage open communication about money management, explain why you make certain choices and how they contribute to your overall financial well-being.
At What Age Can You Get a Credit Card?
You must be at least 18 to get your own credit card. However, parents can add children as authorized users on their credit cards as early as age 13.
Teaching kids how credit cards work can help them avoid financial pitfalls when they eventually get their first card, and ensure they maintain a good credit history. By starting early with age-appropriate and relatable information—and providing opportunities to test the waters—you can help your children create valuable financial habits that will last a lifetime.
Tamar Satov is a freelance journalist based in Toronto, Canada. Her work has appeared in the Globe and Mail, Today's Parent, BNN Bloomberg, MoneySense, Canadian Living and others.