5 top tips on credit cards for teenagers

If you're considering giving your teenage a credit card: here are five things to consider before applying for that supplementary card.

A credit card can be a useful tool to teach teenagers how to manage their money, and provides a method of emergency payment without the need to carry cash.

In the US and UK, student credit cards are easily available for college students so they can start managing debt and financial tools from the get-go. In Malaysia, parents will have to apply for a supplementary credit card for their teens. This affords a second level of control for parents – you will be able to monitor spending and even cancel the card if your teenager goes overboard.

The downside to Malaysia’s supplementary credit card system is that teens who aren’t responsible for paying their own bills might struggle to understand that how hard it can be to pay those bills when they are due.. 

Before you sign the supplementary card form; consider these 5 questions.

1: Is there an alternative to credit cards for teenagers?

Instead of a credit card, would you be more comfortable with a debit card or pre-paid credit cards which offer similar features but offer a fixed spending  limit ? This will not only teach your kids to keep within their budget, but also safeguards you from a hefty credit card bill at the end of the month.

The only downside is if a particularly expensive emergency crops up such as a car repair bill or medical emergency; there may not be enough in the prepaid card to deal with the calamity.

On this point, it would be important to consider the next question.

2: What are the ground rules for giving your teenager a credit card?

Why are you considering giving a credit card to your child? Is it to teach them to manage their personal finances? So they can get out of trouble when they need cash? Or both?

Some parents only provide a credit card when their child goes overseas to study, and some simply because they want their kids to have the convenience of a credit card.

Once you have the reason you can plan the ground rules. Sit your teen down and explain how you want them to use the card with a reminder that they will have their privileges revoked if they abuse them.

A credit card for a teenager going overseas may be more helpful than a debit or prepaid card as you may not have the time to quickly make transfers or payments should more expensive emergencies crop up.

3: Is my teenager mature enough to have a credit card?

Credit cards stipulate that even supplementary cardholders are required to be 18 years and above. Beyond legal age limitations you will also need to consider if your teen is mature enough to accept responsibility for a credit card.

Have they shown that, thus far, they are responsible enough with money to allow the use of a credit card? How do they spend and save with the allowance they are given?

Remember: A child who is frugal with their allowance will most likely be as prudent with a credit card.

4: What credit limit should I give my kids?

If you are worried that your teen may overspend you can assign a credit limit that is slightly higher than their monthly allowance and slowly increase the amount once they’ve earned your trust.

As an extra precaution you can also set up a security SMS alert which will inform you each time the card is used. Some banks even offer stricter security features and will not allow a transaction to go through unless it is approved by the principal cardholder.

5: What kind of credit cards have the lowest fees?

If you’re giving your child a credit card for emergencies only, you might want to pick one with the lowest possible rate of interest and no annual fees. We’ve listed all the cards in Malaysia that offer reduced rates of interest, and those which have special deals on annual charges.

Credit cards are great tools to help you manage your personal finances but can also lead to debt if used excessively. Before handing your child with his/her credit card make sure that they respect the value of money and have learned basic personal finance skills, such as saving and budgeting. This will help teach them to appreciate every hard-earned ringgit when they start earning their own income.

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