A while ago, we wrote about how one of our customer have encountered difficulties in securing a credit card because she was deemed too old to qualify for one. And just when we thought that is a unique situation for some Malaysians to be in, recently, we have received an inquiry from an enthusiastic parent as to whether it is advisable to give their teenager their very first rectangle piece of plastic upon the completion of their SPM/O-Levels.
As absurd as it may sound, giving your soon-to-be an adult teen a credit card is not entirely a far-fetched idea as they move on to the next stage of their life. Even then, does that mean that you should not give your kid a credit card? Well, that’s something that we will be exploring in this article.
What Are The Benefits of Giving my Kid a Credit Card?
1. Financial Literacy
Actual hands-on experience will provide your child the insight that they will not get from role-playing or listening to a lecture. As a powerful financial teaching tool, it will let your kids know how to use it, read monthly statements which will help aid them in their book-keeping skills and discover the consequences of not paying on time faster than an Instagram Story video.
Teach your kids that whenever they swipe, it is expected for them to make full payment for the things that they are purchasing. Learning the difference between full payment and minimum balance as well as the interest that comes attached to each purchase will hopefully nurture them into responsible paymasters.
2. Easier Access When Purchasing Big-Ticket Items
If your kid is staying with you, chances are you will be the one who’s buying everything that they require and they would not need to pay a single cent as they are depending on you. However, the situation is different altogether if your child is studying overseas and their source of funding will be whatever it is that you have transferred to them from your bank account via money-transferring services.
A credit card can come in handy when it comes to paying for expensive essentials such as a flight ticket home or reference books and best of all, they will also learn how to gain and accumulate credit card reward points for their future use. Just make sure that the transactions are only for necessities and not a random Ed Sheeran concert ticket.
3. Handy During Emergencies
As much as we dislike to think of it as a possibility, in the scenario that something unfortunate happens to your kid and they would need to be hospitalised (i.e; an invasive surgery), apart from their health insurance, they would need to pay the hospital administrative fees as well as a deposit (which will be returned to them or absorbed into their medical fees) prior to getting treated.
Which is all fine and dandy if your child is accompanied by a guardian but what happens if they are on their own with no sufficient cash in hand? As such, having a credit card can come in handy in times of urgent need while assuring that your child is able to receive the care and treatment that they require in a timely manner.
4. Building A Good Credit Score
By the time your child is ready to graduate and move on to working life, if they have been consistently using their credit card during the duration of their studies, they would have inadvertently built a good credit score because of their card usage.
This will prove to be advantageous especially if they are seeking for business and financial-related occupations as some employers do look at the credit score of an interview candidate to assess their financial capability in managing their finances. In a competitive, cut-throat job climate, having an extra edge will definitely be a great respite for your kid and all they need to have is prudent money habits, practiced in a consistent manner.
Why I Should Not Give My Kid A Credit Card?
1. Living Beyond Their Means
The rise of young bankrupt Malaysians is a reality. With those aged between 25 and 44 making up the majority of those who are declared bankrupt, it is important to ensure that your child understands the power of a credit card and the responsibilities that come with it. Teach them that making the minimum payment will only help them to avoid penalties and that it won’t help them to settle their outstanding balance .
Failure to make payment will in turn bring them to financial ruin and result in an infavourable credit report which will definitely affect their chances in securing a loan, be it for a car or a home.
2. Making Impulsive Buys
The thing about credit cards is that it allows the user to buy things that are normally inaccessible with their current income. This notion can distort the true meaning of a credit card to your kid as they will view it as something that can be used to fulfill any of their wants immediately, thus leading them to make impulsive buys which is usually based on their emotions more than their actual needs.
Prevent them from turning into overnight shopaholics by lowering their credit limit and ensure that they do not abuse the privileges that comes with owning a credit card. After all, if this habit can happen to a gainfully employed adult, it is absolutely possible for a kid to develop the same addiction too.
So…Should I Still Give My Kid a Credit Card?
There are no fast and hard rules as to whether you should give your kid a credit card as there are both pros and cons when you choose to do so. If you feel that your kids are not ready for a credit card and the responsibilities that it’s attached to, that’s alright. After all, it all depends on the individual’s spending style so yes, it is possible for your kid to have a credit card and stay debt-free as long as they keep the credit cards do’s and don’ts in mind.
Evidently, it is irrefutable that having a credit card can easily pave the way to a healthy credit report while playing a role in educating your child as they turn into knowledgeable, informed buyers when it comes to making their purchasing decisions in the future.
If you have been thinking of getting your kid a credit card, let us help pick one that works best for them as well as their needs. As always, do spare some time to read the terms and conditions.
Are you planning to give your kid a credit card? Tell us about it in the comments section below – we'd love to hear from you!