Every parent needs to be financially literate and guide their children in managing money. One of the best ways to get your kids involved with finance early on is through teaching them about credit cards.
Choosing a Credit Card
Credit cards will differ based upon interest rates, rewards, transaction fees, and other factors; however, parents mustn’t simply recommend a card because it offers good rewards or no annual fee.
To help you make this decision, we have written a guide that outlines some of the crucial things that all dads should consider when choosing a credit card for their kids.
Credit Card Fees
Some cards charge an annual fee which can quickly add up if you have more than one child. Typically, the rates are less than the first-year fee. The best way to avoid this problem is to go through the credit card help guide and learn about the best credit cards as you look at their second-year rate.
Once you have found a card offer that suits your needs, it is essential to check the fine print to ensure no hidden charges or penalties, such as cash advance fees.
Many people apply for just one credit card when they are young and then carry this debt into adulthood. However, only having one credit card makes it pretty easy for your children to become overdrawn. While they are young, likely, they will not earn much money and therefore should be able to rely on their parents for funds until payday.
However, this may not always be the case. It is also important to remember that young people make more mistakes than older adults. They may spend too much of their available credit or forget about paying their bills altogether, which can lead to some rather hefty fees. It may be best for parents to apply for two cards to avoid these errors.
Credit Score Requirements
When applying for a credit card, it is essential to remember that every card has its own set of criteria. If you are applying for your children, some cards will demand higher scores than others.
Many students prefer to get the first credit card they are accepted for. However, this can be a big mistake. If you have two young adults who wish to apply for their credit card, then remember that one’s eligibility cannot take away from the other.
Ease of Use
Not many young people have a large amount of spending money, so they will only really use their credit card for the odd grocery shop or petrol payment. It is vital that your child’s first card is easy to use and allows them to pay off the balance in full every month.
In contrast, some ecards demand an initial transaction fee which can make things difficult when trying to manage your cash flow around your monthly bills. A good example would be American Express because it has no annual fee and doesn’t charge any interest on transactions made within the first month.
Credit Card Incentives
In many cases, parents will apply for a card because it offers some benefits, such as no transaction fees or cashback rewards. These types of cards can be great incentives for students who need a little bit of extra help with budgeting.
However, before you recommend that your child applies for one of these cards, then ask yourself if they will use it. If your son or daughter is likely to leave their money sitting there at the end of each month, then maybe the cashback rewards won’t outweigh the annual fee and transaction charges that come with these types of cards. If your child doesn’t need the incentives, don’t bother, as they can cost more than they are worth.
Choosing a Credit Card with Long Term Benefits
Many younger people think that they will be able to pay off their credit card debt by the age of 21 and not have to worry about it again, but this is a big mistake. Although young adults who work full time may not require a credit card anymore, those who choose to go to university or move abroad for an internship will benefit from having one.
This means that even if you plan on canceling their account when they turn 21, make sure you keep it open until you feel like they won’t need it anymore. By doing so, you are preserving their credit history and allowing them to build up a strong credit score.
Choosing a credit card can be difficult at the best of times, and dads need to ensure that their kids will not make any mistakes when signing up.