As kids today grow up in a cashless culture, parents need to be having the “credit talk,” financial experts say. But why, exactly, is talking to your teen about credit important? For starters, more than half of teens say they feel unprepared to finance their futures, according to research from Junior Achievement and Citizens Financial Group, Inc.
But there’s some good news, as there are ways for teens to start building credit history and learn about many things credit-related. We connected with financial expert, Jennifer Seitz, a certified financial education instructor and director of education at Greenlight, who discussed why parents should be talking to their teens about credit, why it’s important for kids to have credit and managing credit responsibly.
Talking to Your Teen About Credit
How important is it for teens to start building credit?
Building credit lays the foundation for a teen’s future financial wellness. If they can establish a positive credit history early, it opens doors to financial opportunities. As teens transition into adulthood, they’ll need credit for significant milestones, like renting an apartment, securing a car loan, or even applying for a mortgage one day. A strong credit history will increase the likelihood of approval for these essential transactions — and can greatly improve the interest rates they’ll be offered.
As teens gain knowledge and practice responsible credit management, like spending within their means and making payments on time, they will increase their credit scores. And these habits will pave the way for them to reach their financial goals in life.
Should parents give their teen a credit card? Why or why not?
When it comes to talking to your teen about credit, set spending expectations with your child before a credit card arrives. Explain that credit cards aren’t magic “free money” cards, but rather delayed-payment tools. You’re borrowing money, and if you don’t pay it back right away, you’ll owe even more with interest. That’s money their future self won’t be able to spend on something else.
Share your own experiences, maybe even some spending slip-ups when you first started using a credit card. Encourage them to look at their purchases in the past. Have they ever experienced impulse buying? Help them learn to recognize that temptation and come up with strategies together to implement “responsible spending.” The value of this training wheel is to allow space for mistakes and learn from them within a safe zone.
If there is a spending spree after you’ve set the expectations, it’s time to sit down with your child for a new strategy. To help control their spending going forward, consider setting up some guardrails as a buffer zone. Set a modest spending limit — separate from the credit card’s limit — that aligns with their allowance so that they can’t go overboard. Check their credit card statements together regularly and have a financial debrief of where their money is going. And remember, patience is key. Gradually, they’ll start making wiser choices and understanding the value of hard-earned dollars.
Since we’re discussing talking to your teen about credit, Greenlight has something called the Family Cash Card where teens can start building credit before age 18. Can you explain how this works and how it helps kids build credit?
The Greenlight Family Cash Card was launched last year as the first credit card for parents to invest in their family’s future. It offers up to 3% unlimited cash back on every purchase, with no annual fee. This month, we made it available for teens, too, so their parents can add them as authorized users. Teens learn to manage credit responsibly by tracking their balances within the Greenlight app while parents can set flexible spending limits and get real-time purchase alerts. They can also play Level Up™ an in-app financial literacy game to learn new credit lessons.
Since talking to your teen about credit is important, what are the benefits of something like the Family Cash Card vs. a teen getting a part-time job at age 16 and getting their own low-limit credit card?
With a parental-controlled credit card, you’re acting like their financial GPS while leveraging the financial education resources provided by Greenlight. It’s a chance to teach budgeting, track their expenses easily in one place and introduce them to the world of credit in a safe way. On the flip side, the part-time job gives them a taste of earning, saving and spending their own hard-earned cash. It’s a classroom where they learn the real value of money, time management, and the pride of independence. Whether you’re taking the steering wheel with a controlled card or letting them take the wheel with a job, both roads offer golden opportunities for lifelong money skills.
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