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“It’s not extra money” and Other Things Teens Should Know About Credit Cards

May15

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Thank you to Equifax for underwriting this conversation about talking to teens about personal finance.

One night when I was in college, I went to a basketball game with my friends. We noticed a crowd of people gathered around a table outside the stadium. They were giving away free t-shirts for the game, and all we had to do was fill out an application for a credit card.

I didn’t want a new credit card, but an application seemed harmless, and I didn’t know that I would even get approved. Besides, getting free stuff was something that my friends and I were really good at. Along with all the other college students around me, I got my free t-shirt.

It’s compelling to join that group mentality, but I’ve learned that when it comes to credit cards, you don’t want to go along with the crowd.

As an adult, I’ve volunteered to teach personal finance classes to teens in local schools. This is what I want teens to know about how credit cards work before they go off to college:

1. It’s not extra money so you can spend more than you earn. A line of credit is not income, it’s debt. It can be used to help manage cash flow, but it can also be a heavy burden to carry. When you see other students use credit cards to buy things they can’t afford, know that they will have to pay it back later, and it won’t be easy for them.

2. Borrowing money is expensive. An interest rate can look small, but it adds up in a way that makes a restaurant meal, or music, or a new shirt cost much more than expected. If you make small payments instead of paying off the balance in full, you’ll be making those payments for years. Many adults have learned this the hard way.

3. Pay your bill on time, always. Companies keep track of your payment history on a credit report. It can affect your ability to get a certain job or buy a house. Even though I cancelled the card I received when I applied for a free t-shirt, that still went on my credit report.

4. When you don’t pay on time, there are big late fees. Pay attention to the fine print on the back of your statement, and if you don’t understand it, ask someone. You need to know what you’re getting into ahead of time.

What do you wish you had better understood about credit cards and borrowing money when you were younger? What would you tell teens now?

Photo source: iStockPhotos/ Thinkstock

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Thank you to Equifax for sponsoring this conversation on speaking to your teen about personal finance.

About the author


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Rachel Meeks is the voice behind the popular blog Small Notebook, a resource for simplifying and organizing your home. (Because it's so much easier to be a parent when you're not surrounded by a ton of stuff.)


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13 Responses to ““It’s not extra money” and Other Things Teens Should Know About Credit Cards”

  1. fancybob May 16 at 10:35 am Reply Reply

    The best words of wisdom that my father ever gave me regard finance were: “There is nothing I want in the world so badly that I am willing to pay credit card interest for it.” From a young age, I was taught to basically treat a credit card like a debit card – always make sure you will have enough in your bank account to cover the bill each month. There are lots of better ways to finance large expenses than with a credit card (I just learned that you can set up payment plans for most medical bills without getting charged ANY interest as long as you make regular payments, for example).

  2. Tonya May 16 at 12:22 pm Reply Reply

    I think that it’s also important for kids to get a credit report as soon as they can. I had mine sent to me, and there were charges and cards and accounts that I had never heard of. I urged my brother to look into his a few years later when he turned 18, and he had the same scenario. Come to find out it was someone we knew in our family and we were devastated. Talk to your kids, help them out!

  3. I wish there was a waiting period for credit cards and a raised age limit! Seriously, what 18 year old is equipped to handle that kind of financial decision? Credit card companies soliciting college students is predatory.

    • Jessica May 16 at 1:55 pm Reply Reply

      Keep in mind that not all 18 year olds are dependents- some are married with full time jobs, mortgages, kids with unpredictable medical bills, or are responsible for their own tuition (even if all they have to do is pay it until the student loan comes through- that requires having thousands of dollars lying around!). I’d probably go in the other direction to avoid problems. I had a credit card from the time I was a young teenager, with a cosigner and a really low credit limit. I learned to make the payments on time and not carry a balance, and got over the novelty of credit. That meant that when I went to college, I had a good payment history, the convenience of having the card, but knew not to abuse it. I’d want to work out something similar with my kids, whether it was opening a separate credit card account with a low limit in my name and giving them the card to use, or having them open an account themselves with a cosigner.

  4. Margo, Thrift at Home May 16 at 1:09 pm Reply Reply

    This is excellent, clear advice. My dad got me a credit card, under his name, when I was 18. He told me he would cut it up if I didn’t pay it off every month. That got me started well, but I didn’t know about the damage I was doing to my credit by signing up for every credit card that came along! I had so many store credit cards, too, until I got rid of those after talking to a financial advisor when my husband and I were trying to prepare for grad school loans.

  5. Melissa May 16 at 4:45 pm Reply Reply

    I would rather teach my daughter frugality and the importance of having savings, emergency and long term. This is something i have been working for my whole adult life and its tough but possible. Having more then one emergency credit card is unnecessary. Credit cards are like mobsters and loan sharks, they always bite you in the long run. Learning to save on the other hand makes you money, by earning interest, rather then costing you money by paying interest with a credit card.

  6. Elizabeth May 16 at 5:09 pm Reply Reply

    From a blog post I just wrote — A thought that I have had reoccuring lately in my head, is the concept of robbing our future selves. It came to light in a practical way, when I was considering the cost of people using credit cards. I realized that using them now, was in a way robbing from our future selves…taking money we would have then and using it to buy something now. But the thing is–we have no way of knowing if the future us can afford that, and therein lies the problem so many people face. — When we make decisions today, be it with our time, our money or our relationships…remember what impact it can have on the future us. And pause for a moment to think…is it worth it?

  7. A May 17 at 9:11 am Reply Reply

    I got my first two credit cards in college (for a T-shirt and a gym bag) and I learned to use them correctly. They had high interest rates which caused me some trouble when I had to put my last semester of tuition on it (my financial aid was discontinued with no warning (if I didn’t pay I didn’t graduate) and it took me about a year to pay it off. I learned a lot from that experience. More importantly though, I established credit. When I met my husband in our mid 20’s he had never had credit because he was scared to be in debt. His credit report was a mess and it wasn’t until we got married that he had a good credit score.

    My advice to teenagers is to learn to use credit wisely and to your advantage. Establishing good credit history early can help you with auto loans, house loans, etc. I’m planning on getting joint credit cards when my kids are teens to teach them exactly this. Credit is not something to be afraid of but it needs to be used carefully and responsibly.

  8. sandi May 18 at 12:00 am Reply Reply

    keep your credit card in an icetray in the freezer! if you want to purchase something, come home, remove the card and if you still desire the item once the ice melts go back and make the purchase. all kidding aside, my parents let me have a credit card in college but i had to pay the balance in full monthly. to this day (i am 44) i have not paid a penny of interest on a credit card. the advise that i would give is that if you cannot pay cash for the item then don’t pay for it with credit. use your card for emergencies only. don’t have more than one card. if you mess up early it is hard to recover from. i think teens should learn the value of saving money and having to earn money for certain items. our parents would set a limit on the amount of money for shoes (for example) and if we wanted a pair that was over what they thought was generous we had to earn the difference for the “designer” brand we wanted. that often lead us to pick lesser expensive brands. basic skills like balancing a check book and using credit should be taught in high school before the temptation sets in.

  9. Carolina May 18 at 1:48 pm Reply Reply

    I got my first credit card at the age of 41. I got it to use when I travel ( it is not linked to my bank account so if anyone steal it they can’t get hold of my money ) and when I shop online. I have always paid the full balance on it every month and even though I’m eligible for a very high credit due to my salary I have a credit that will suffice for a month of traveling for example. I live in Sweden and I think the system might be different here, I don’t get lower credit from never having had a credit card before as it sounds like it is for you. I stay clear of all store credit cards too. I was taught this from my parents, they have to this day never had a credit card. I have taken two loans in my life, for my education ( we have state provided student loans ) and to buy a house. I would never take a loan for any reason that isn’t that important. And this is just what I will tech my kids, or actually, what I already teach them. 

  10. Marcy May 21 at 9:11 am Reply Reply

    One thing to keep in mind is that renting an apartment will be tricky without some kind of credit history (read “need careful use of credit card”) for a young adult. The advice from Equifax is great–one credit card, used to pay for gas, is sufficient. Be sure to have a small monthly credit limit, and yes–pay it off in full every month. Kids need to learn financial self control and this is a good way to help them while they’re still at home. Credit isn’t the big monster necessarily–it’s how it’s used! There are numerous ways young adults can make bad financial decisions, and misusing credit is only one of them.

  11. Laura May 22 at 11:47 pm Reply Reply

    I think it’s really important for people to realize that credit cards are loans, and not their money.  I used to work in a credit card servicing call center and people did not understand that the money they used was the bank’s and not their own.  Banks can charge the interest they want and stop your use of the card at will.  It’s a privilege, not a right, and it’s not YOUR money.  I had a credit card around 16 years old and was taught that if I wanted to avoid interest I should pay it off monthly in full.  11 years later and I’ve never paid a penny of interest.  I only buy on my card what I have in my bank, and I only use it for build my credit.  

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