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Teaching teens about credit cards

A teenager’s first credit card opens up a new world of financial freedom. It’s a great way to make the most of the now and enjoy additional security when shopping or travelling. However, it’s important they understand how to manage their account. Here are our tips to teach teenagers how to use their credit card responsibly.

It’s important to ensure they understand that credit means everything purchased has to be paid for - preferably sooner rather than later.

Using a credit card is useful source of finance and security. However, if the account isn’t properly managed then your teen could find themselves with debts they can’t repay. Learning to manage these repayments is the key to successfully handling a credit card account.

Budget tools such as the CommBank budget planner helps you work out how much you afford to spend, before applying for the credit card.

If they (or you) discover they’re spending more than they can afford or falling behind on repayments, the first step is to stop using the card. CommBank has a range of options to help in this situation. Either contact your nearest branch or call 13 14 31.

Interest is what the borrower pays the bank for the using their money. The rate varies depending on the financial institution and the type of account. Even if your teen has an interest free account they need to ensure certain conditions are met - anything bought outside these terms will accrue interest.

Interest repayments in a nutshell:

  • If they pay off the balance in full and on time, interest won’t be charged.
  • If they only pay the minimum repayment each month, interest will be charged on anything left owing. However, there will be no additional fees as long as they’ve paid by the date on the statement.
  • If they miss the repayment date or minimum repayment amount, then a late fee will be charged plus interest on everything borrowed. Over time, this could end up becoming harder to pay back.

All personal CommBank credit cards have the benefit of up to 55 days interest free on purchases, see how your can take advantage of this.

Setting up direct debits and automatic reminders can help your teen keep up to date with repayments.

CommBank’s Auto-Pay creates a monthly direct debit to avoid missing repayment dates. You can choose to pay the minimum amount, the total balance or a set amount every month.

Setting up a balance or payment reminder sends out an automatic SMS or email when payment is due or if you want a weekly account balance update.

Withdrawing cash from a credit card will incur a fee. Cash advances or ATM withdrawals on a credit card incur higher interest rates than card purchases. Recommend your teen saves their debit card for cash and reserves the credit card for purchases.

Although it might seem a while off, when it comes time to borrow money from the bank for a personal loan, the bank will look carefully at their financial history.

By managing accounts well and showing they can manage low limits of credit (like a credit card) and that they have paid it back in regular instalments, they will be more likely to be accepted for more credit when they need it.

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