By SimplyBrilliant.ca
Getting a first credit card is almost a rite of passage, but how do you ensure your teen won’t get into debt? Here are six tips on this.
Getting your first credit card is almost a rite of passage to adulthood. One of the first things teens do when they arrive on a college or university campus is to apply for a student credit card, which is very easy to obtain.
There is no doubt that credit cards are ubiquitous. According to the Canadian Bankers Association (CBA), there are 74.3 million Visa and MasterCard cards in circulation in Canada, representing an average of two cards per Canadian.
While most Canadians use their cards wisely – the ABC says 58 percent of Canadians pay off their card balances in full each month – not everyone comes naturally to using a credit card wisely.
Some financial experts suggest that parents help their children get a credit card before starting post-secondary education, allowing them to develop good spending habits while still at home. But the sound of the cash register can also spell trouble when it comes to kids and credit cards.
What is the minimum age to get a credit card in Canada?
A young person who reaches the age of majority (usually 18) in their province or territory in Canada can obtain a credit card, making new students ideal targets.
Some financial institutions offer credit cards to children as young as 16 if a parent is a co-signer. Other banks provide prepaid credit cards, which ensure that the user will not spend more than the amount on the card – these cards can be used from the age of 13.
While some advocate the use of the credit card, claiming that the cards offered to young people allow parents to closely monitor the consumption habits of their children while introducing them to the use of credit (a co-signer has access to the accounts and online statements), others believe that children are simply delaying learning about debt and ignoring the concept of saving.
The benefits and risks of credit cards
The advantages of credit cards are clear: instant access to funds, 24 hours a day, seven days a week; no guarantee required for the amount invoiced; solid protection against fraud in the event of loss or theft of the card; and younger users can begin to build their credit rating – making it easier for them to make larger purchases later, like a car or a house.
However, the risk of accrued interest is genuine. Interest is charged daily after the statutory 21-day grace period. Any balance carried forward means that more than the asking price is paid for the purchased item. Credit card rates average 18 percent and can go as high as 30 percent for specialty cards offered by retail outlets. Interest is charged immediately on all balance transfers (when transferring the balance from one credit card to another) and cash advances.
Andrea Baxter knows this better than anyone. She is one of five women who founded Smart Cookies, a money club inspired by an Oprah episode about personal finance. She realized at age 28, 10 years after getting her first credit card; that her debt was nearly $18,000.
“In a way, my story is that of a spoiled child. My parents always gave me money without hesitation. I never really received advice or information about money, she says. They told me I should save, but I was never forced to.
Andrea got her first credit card when she started college. The $500 limit was reached in just a few weeks. After that, her father called her to remind her unequivocally that buying clothes instead of books was not a good idea. Still, Andrea explains that her general attitude towards money had never been more informed.
