If your child has started showing interest in financial products, it’s time to have a few important conversations. Financial responsibility and healthy spending habits should be developed early on so your child can start their credit journey the right way.

To help you leave no stone unturned, this guide will outline 5 important credit card lessons for teens and young adults your child should know. You’ll learn: 

• Why proactive education is crucial to your child’s long-term financial stability
• What your child should know about credit cards
• How you can support their credit profile and give them a significant head start in life

Why Proper Credit Card Education Is Important

Teens and young adults often struggle to get a credit card or other financial products because the CARD Act of 2009 made obtaining them extremely difficult. If a child is under 21, they must demonstrate an independent ability to make payments or have a cosigner over the age of 21 with sufficient income to make them.

While some may fall into this category by having a steady job, most minors and teens won’t have access to independent credit until later in life.

This doesn’t mean you should wait until they meet the above conditions to teach them about credit cards. If your child takes out credit without appropriate education and discipline, they might make costly mistakes. By starting early—preferably in high school—you can prepare your teenager for their first credit card and ensure they use it sensibly.

What To Teach Teens About Credit Cards

You should cover several aspects of proper financial management to make your child a reliable borrower:

1. Differences between debit and credit cards
2. Credit card technicalities
3. Budgeting
4. Personal information protection
5. Credit scoring

Explain the Differences Between Debit and Credit Cards

Many children are introduced to the banking system through debit cards, as checking accounts are more accessible to them than credit products. If they’ve gotten accustomed to a debit card, you must make it clear that using a credit card is vastly different.

Creditors penalize certain spending behavior that doesn’t have consequences when using a debit card. For instance, your child won’t have to pay anything if they drain the checking account, but they’ll incur significant fees and interest if they max out the credit card and leave it empty.

The following table highlights the main differences between credit and debit cards that will help your child draw a clear line between the two and act accordingly:

Card Type	Source of Funds	Fees and Interest	Impact on the Credit History
Debit Card	Owned funds in a checking account	Minimal to none	None
Credit Card	Borrowed funds in a credit account	Variable and potentially large depending on credit behavior	Significant

When you explain the above differences to your child, they’ll understand the weight of using a credit card, which should result in more responsible use.

Teach Your Child the Nuts and Bolts of Credit Cards

The basic principle of using a credit card is easy to explain—the bank will lend them a specific amount of money they can use but need to pay back. 

Easy as it may be for them to grasp this concept, the devil lies in the details. You should teach your child the key terms they must know to meet their obligations toward the lender:

Term	Definition
Annual Percentage Rate (APR)	Interest on the outstanding balance at the end of each billing cycle. Billing cycles typically last a month, so the APR should be divided by 12 to get the monthly rate
Balance	The total amount of money owed, including accrued interest and all applicable fees
Cash advance	Money withdrawn from an ATM. Creditors typically impose higher interest rates on withdrawals than purchases made using the card
Credit report	A file aggregating the user’s credit history and determining their eligibility for future loans
Credit score	A three-digit number based on the information from the report that reflects the account holder’s creditworthiness
Utilization rate	The outstanding balance compared to the card’s credit limit
Grace period	The timeframe between the end of a billing cycle and the repayment due date

If you have a credit card, you can demonstrate how these terms work in action. Show them your billing statement so they can see a breakdown of all charges and fees. Doing so will help your child understand that borrowed money comes at a cost and should be managed carefully.

Let Your Child Know Their Credit Limit Is Not Their Budget

Source: energepic.com

When your child gets unrestricted access to a larger sum of money than they’re used to, it’s easy for them to get carried away. You must emphasize that the fact they can spend all that money doesn’t mean they should.

Before your child gets a credit card, set some ground rules and define acceptable purchases clearly. Discourage the use of credit cards for:

• Cash advances (particularly large ones)
• Vacations and other significant indulgences
• Luxury or big-ticket items
• Unnecessary casual spending

Credit funds should always be used as a backup or the means of buying something important you currently can’t afford from disposable income. Motivate your child to be frugal and carry healthy spending habits into adulthood.

Make Sure Your Child Keeps Their Private Information Safe

Financial fraud is on the rise—according to research by Security.org, 65% of Americans using credit cards and other financial products reported falling victim to it at least once in their life, up from 58% in 2021.

Teens and young adults are more vulnerable to such issues due to a lack of experience. You must teach them to be cautious from the get-go and avoid sharing credit card information with anyone but reputable merchants and institutions. If they use the card for online purchases, they must check the vendor’s credibility beforehand.

An even bigger concern—especially for minors—is identity fraud caused by a stolen Social Security number (SSN) and other sensitive data. Minors’ SSNs are typically unmonitored, which fraudsters exploit for synthetic identity fraud. After stealing a child’s SSN, they combine it with fake information to forge a new identity and take out credit in their name.

The following excerpt from the Federal Reserve’s whitepaper on synthetic identity fraud explains why such crime is so prevalent:

“The ease and low cost of creating synthetic identities contribute to the widespread impact of this type of fraud on the financial, insurance and healthcare industries, government agencies, and consumers. Sophisticated crime rings can leverage multiple tactics at scale to cultivate synthetic identities, including using fake addresses, creating sham businesses, and forming relationships with collusive merchants to cash in.”

Source: The Federal Reserve: Detecting Synthetic Identity Fraud in the U.S. Payment System

Besides keeping their credit card security information safe, your child should pay special attention to their SSN and other Personally Identifiable Information (PII). This still doesn’t guarantee complete safety from fraudsters, so we’ll discuss the best way to reduce the risk of identity fraud later in this guide.

Stress the Importance of Building a Solid Credit Profile

From the moment your child gets their own credit card, they’ll start building a credit history that will be reported to the credit bureaus once they become a legal adult. Their borrowing and repayment habits will directly impact their eligibility for future credit, so make sure they understand the importance of:

• Making timely payments
• Keeping their credit utilization low
• Monitoring their credit score to stay on the right track

If your child is a minor or young adult without access to financial products, they’ll likely start their credit journey as an authorized user of your credit card. Many parents consider this a good way to give their children a head start by helping them establish a credit profile early on. If you’re considering this approach, you should beware of its significant drawbacks:

• Your child will inherit your credit score, so if you miss payments or damage your credit otherwise, all red flags will also stay on their report
• You must give your child access to your card, which may not be the best idea unless they’ve proven themselves reliable
• When you remove a child from your card, all credit history associated with it gets removed from the credit report, so they’re back to square one

The good news is that there’s a more convenient and reliable way to help your child build a credit profile—FreeKick.

Build Your Child’s Credit and Protect Their Identity With FreeKick

There are two aspects of a good credit profile—a secure identity and a good credit score. Offered by Austin Capital Bank, FreeKick is an FDIC-insured deposit account that helps you cover both these aspects for your child.

Steps for Using FreeKick’s Credit Building Service

Your child is eligible for FreeKick’s credit building service if they’re between the ages of 13 and 25. This service is a good way to help them establish a credit history early on in life in only three simple steps:

1. Create an Account—Create an account at FreeKick.bank and choose a deposit that suits your budget
2. Set It and Forget It—FreeKick will start building 12 months’ worth of credit history for your child
3. Keep Growing—After 12 months, close the account without any fees or continue building credit for your child for another year

With these steps, your child can have up to five years of credit history when they turn 18. This will help them save $200,000 during their lifetime by helping them secure better loan terms and other financial benefits.

How FreeKick Protects Your Child’s Identity

Child identity theft happens every 30 seconds, and if your child falls victim to it, all your credit building efforts can go to waste. In the worst case, your child might get charged with crimes like credit card theft, so it’s a good idea to proactively invest in protecting their identity. FreeKick’s ID protection services include:

Services for Minors	Services for Adult Children and Parents
Credit profile monitoring Social Security number (SSN) monitoring Dark web monitoring for children’s personal information Up to $1 million identity theft insurance Full-service white-glove concierge credit restoration Sex offender monitoring—based on sponsor parent’s address	Credit profile monitoring SSN monitoring Dark web monitoring for personal information Up to $1 million identity theft insurance Full-service white-glove concierge credit restoration Lost wallet protection Court records monitoring Change of address monitoring Non-credit (Payday) loan monitoring Free FICO® Score monthly FICO® Score factors Experian credit report monthly

FreeKick Pricing

FreeKick offers two pricing plans:

FDIC-Insured Deposit	Annual Fee
$3,000	$0 (Free)
No deposit	$149

With both plans, you get:

1. Credit building for six children aged 13 to 25
2. Identity protection for two parents and six children aged 0 to 25

Make sure you cover all bases when setting up your child for financial success—sign up for FreeKick today.

Featured image source: Andrea Piacquadio