Entrusting your child with a credit card is an important milestone that requires preparation. Children perceive money differently than adults—particularly intangible money they can’t see or feel. When you factor in that the money isn’t theirs but the bank’s or yours, you can see why proper financial education is crucial for responsible use.

If you’re ready to start explaining credit cards to kids, you’re in luck—this guide will cover everything you need to teach them.

When Is the Right Time To Teach Your Children About Credit Cards?

Financial education should start early in life, preferably when your children become teenagers. They might not necessarily start using a card right away, but it takes time to build the foundation of healthy spending habits.

There’s a high chance your child won’t be able to get their own credit card before turning 21 at all since the CARD Act of 2009 made it hard for young adults to take one out. Your child would have to demonstrate an independent ability to make repayments, which many children struggle with, especially full-time students.

Luckily, there are alternatives, such as adding your children to your credit card as authorized users. You’ll learn more about this option after we cover the main aspects of credit card use that every child should know.

How To Explain Credit Cards to a Child

Before giving children your credit card or adding them as authorized users, you should go over the following points:

1. The cost of interest and borrowing money
2. Fees, interest, and billing statements
3. Credit scoring
4. Responsible use
5. Card and identity protection

Teach Your Child About Borrowed Funds

The first and most important thing you must teach your children before giving them a credit card is that the money they’ll spend isn’t theirs or yours. It’s borrowed from the bank and must be repaid.

This may be confusing to a child if they’ve seen you use both debit and credit cards. It’s essential to explain the main differences between the two:

Feature	Debit Card	Credit Card
Source of funds	Personal bank account	Money borrowed from a bank
Fees	Minimal to none	Variable and potentially significant
Interest	None	Variable, depending on the issuer

High-school students and young adults shouldn’t have trouble grasping this difference. If your child is an early teen, you might have to explain it more thoroughly, preferably through examples. Let them know that using a credit card is practically the same as borrowing cash from someone and that the money must be paid back on time. They’ll be sanctioned if they don’t make timely repayments, either through high interest/fees or other penalties.

Considering the above, your child should know they shouldn’t use a credit card to make large, unnecessary, or frivolous purchases. Explain that it’s always better to use their own money than the bank’s and that the latter should be a last resort.

Explain Fees, Interest Rates, and Billing Statements

It’s important to teach your child that credit cards involve various fees, such as:

• Annual fees
• Late payment fees
• Foreign transactions fees
• Balance transfer fees

While some of these expenses are always included, others are preventable with a bit of discipline. Your child should know how these fees work and what they can do to minimize or avoid them. 

Late payment fees are potentially the most impactful, so give them the necessary attention. The same goes for interest rates, which you can explain as the cost of using the bank’s money to fund purchases.

Your child should be mindful of interest rates and how they change in case of late payments. Let them know that repayment doesn’t only cover the principal but also the cost of using borrowed money. When they understand credit card funds aren’t free, they’ll spend them more responsibly.

Teaching a child how to read a billing statement is also a good idea. You may receive the statements by email or access them through the bank’s app, so your child should be familiar with these tools. The statements will give them more specific insight into their spending and all the related fees, helping them manage their account more effectively.

Emphasize How Irresponsible Use Impacts Credit Score

Irresponsible spending is typically caused by a combination of two factors:

1. No immediate consequence
2. Lack of long-term thinking or a broader context

Source: Kindel Media

If your child splurges on something using the card, nothing will happen immediately that would signal they’ve made a bad decision. They’ll only understand the consequence when the fees and interest start stacking up.

You can’t blame them for such behavior as most kids are naturally impulsive. The best way to prevent it is by explaining that there are real, serious dangers of poor credit management—a low credit score and the potential to not be able to access credit in the future.

The moment your child starts using a credit card, they start building a credit profile. In case they are an authorized user of your credit card, their credit behavior will directly impact yours and vice versa. Note that a child can have a credit report when they are a minor if they are an authorized user on your card, but they won’t have a credit score until they become an adult.

Your child should know that using a credit card is a large responsibility and that bad borrowing and repayment habits can affect their chances of getting credit later in life.

When you add a child to your card, they inherit your credit history, and the two stay connected. Let them know that any mistakes show up on both credit reports, so they can damage your standing as well.

Note that removing a child from the card before they reach legal status will wipe all credit information from their profile. The information will still stay on your report, though, so any issues might have long-term consequences on your score even after the removal.

Show Your Child How To Use Cards Responsibly

After you’ve explained how everything works in theory, it’s time to show your child how responsible credit card use looks in action. Teaching by example is the best course of action, so let them see how seriously you take credit cards by:

• Being frugal—Only buy the necessities with a credit card and then show your child the report so they can see what types of purchases are acceptable
• Making timely payments—Make monthly repayments on time and no later than 29 days from the due date and ensure your child does the same to avoid defaults. If possible, it’s always best to pay more than the minimal amount to minimize interest, so encourage them to follow suit
• Paying attention to the utilization rate—The credit utilization rate is the percentage of the used funds. The lower the rate, the better, so teach your child to stay below 30% (they should ideally stay between 2% and 9% to optimize their credit score)

Source: Monstera

Make Identity Protection a Priority

The independence your child will get when they start using a credit card is a double-edged sword. While this makes it easier for them to access funds when needed, it also increases the risk of them sharing sensitive information to make purchases. Sometimes, such information might fall into the wrong hands. 

Identity fraud is a growing concern in the U.S., particularly affecting four groups:

• Minors
• Elderly
• Homeless
• Incarcerated

A lack of identity monitoring in the above groups enables synthetic identity theft—a crime involving the use of someone’s personal information to forge a new identity for a person that doesn’t exist. Minors’ Social Security numbers (SSNs) are often targeted because they are not monitored, and fraud may go undetected for years.

According to Javelin’s research, synthetic identity theft costs U.S. families around $1 billion annually. Still, the financial consequences of this crime aren’t the biggest concern. The following excerpt from the Federal Reserve’s paper explains the damage identity theft can do:

“The impact of synthetic identity fraud on a child’s future may be profound. It could prevent, or significantly damage, the child’s future ability to obtain employment; acquire student loans; acquire services such as housing, phone service and utilities; or secure a general credit line or bank account. Additionally, once fraud is discovered, the burden of proof will likely be on you to convince the credit bureaus and financial institutions that the SSN belongs to your child and not the synthetic identity. This is because the industry typically assumes the first person to establish credit under an SSN is the legitimate owner.”

Source: Federal Reserve: Protecting Your Kids from Synthetic Identity Fraud

According to the paper, private information can be taken from a child in many ways, most notably through social media and gaming groups. You must teach your child never to reveal their SSN or other sensitive information online or otherwise, including their birthdate.

Despite the best efforts, parents often don’t have an easy and effective way to protect their children’s identity and credit profile. If you want to monitor your child’s credit profile more closely while helping them build a solid credit profile, FreeKick can help.

Give Your Child a Head Start and Keep Them Out of Harm’s Way With FreeKick

FreeKick—powered by Austin Capital Bank—combines a Federal Deposit Insurance Corporation-insured (FDIC-insured) deposit account with credit building and protection services. It lets you establish and build your child’s credit profile while lowering the chances of undetected identity fraud.

You can open a FreeKick account in three simple steps:

1. Create an Account—Go to FreeKick.bank, sign up for an account, 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, you can either close the account without any fees or choose to continue building credit for your child for another year

Here are the plans you can select, depending on the deposit amount:

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

What Happens Once You Sign Up for FreeKick?

FreeKick will take it from there and build 12 months of credit history for your child without additional effort on your part. Here’s what you can expect, depending on whether your child is:

• A minor (ages 13 to 17)—FreeKick will automatically start building a payment and credit history. Once they become a legal adult, they will go through a simple process of activating credit reporting, and their account will be reported to the consumer credit bureaus. This way, they’ll start their adult life with up to 48 months’ worth of credit history, helping them build a steady financial future
• An adult (18 and up)—Once they open an account, FreeKick automatically starts building their credit profile and reporting credit to the credit bureaus

You can cancel your plan at any time—FreeKick doesn’t penalize early cancellations. Keep in mind that if you cancel before your child becomes an adult and activates credit reporting, no credit can ever be reported for the account. Credit bureaus only accept credit reporting for adults, and no credit can ever be reported if your child was a minor at the time the account was closed.

FreeKick’s Advanced Credit Profile Monitoring

Since the government doesn’t monitor minors’ identities for identity fraud, you must take these matters into your own hands. FreeKick can help by monitoring your child’s credit profile so that you don’t have to be on a constant lookout for danger.

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 aims to provide every child and young adult with a secure, convenient way of building credit and staying safe. If you want to help your child ensure a more financially stable future, create an account at FreeKick.

Featured image source: jarmoluk