Which Credit Card Should Your Teen Get?
Just when you thought you were finally getting over the college applications, you now have to think about sending your kid to college and hoping they will make smart decisions – and that includes the money part too.
Let’s face it, financial literacy is an essential skill for teens (and us), and we know that when they’ve left home, we need to make sure they will be able to take care of themselves physically and financially.
When it comes to money, in this data age, we know that the days of checkbooks and regular cash are dinosaurs. Our kids today will likely be using Apple Pay and Venmo and of course, what better way to start than with their own credit card?
A well-chosen credit card can teach budgeting, responsibility, and the basics of credit. Let’s delve into the top credit cards teens should consider, backed by stats, data, and expert opinions.
Winnie Sun, managing director at Sun Group Wealth Partners set her kids up with credit cards by the time they reached kindergarten and talks about why this can be a great tool to help our kids develop credit worthiness and personal finance experience.
1. Discover it® Student Cash Back
Key Features:
– Cashback Rewards: 5% cash back on rotating categories each quarter (on up to $1,500 in purchases) and 1% on all other purchases.
– Intro APR: 0% for six months on purchases.
– No Annual Fee: Making it a cost-effective option for students.
Why It’s Great for Teens:
Discover it® Student Cash Back offers substantial rewards without an annual fee. Teens can learn to manage rotating categories and understand the benefits of cashback, making it a practical choice for daily expenses.
Stats & Data:
– Average annual cashback earnings: $150-$200, depending on spending habits.
– Over 20% of cardholders are students, highlighting its popularity in the younger demographic.
2. Chase Freedom® Student Credit Card
Key Features:
– Rewards Program: 1% cash back on all purchases.
– Bonus Offer: $50 bonus after the first purchase within the first three months.
– Credit Limit Increase: After five on-time payments within ten months.
Why It’s Great for Teens:
The Chase Freedom® Student Credit Card provides a straightforward rewards program, a reasonable incentive for new users, and the opportunity to build credit responsibly with the credit limit increase.
Stats & Data:
– Teens and young adults using Chase Freedom® Student saw an average credit score increase of 20 points within the first year.
– Approximately 15% of new accounts are opened by teens, indicating growing trust in this card.
3. Capital One SavorOne Student Cash Rewards Credit Card
Key Features:
– Cashback Rewards: 3% cashback on dining, entertainment, popular streaming services, and grocery stores (excluding superstores like Walmart® and Target®), and 1% on all other purchases.
– No Annual Fee: Cost-effective for students.
– No Foreign Transaction Fees: Great for students traveling abroad.
Why It’s Great for Teens:
This card is perfect for teens who spend on dining and entertainment. The no foreign transaction fees are an added bonus for those planning to travel.
– The average student cardholder earns around $100 annually in cashback rewards from dining and entertainment alone.
– 18% of cardholders are students, showing its strong appeal in the student segment.
The Case for Teens Having Credit Cards
The article from CNBC, [“My kids have credit cards and yours should too,”] by an award-winning financial advisor, emphasizes the educational benefits of teens having credit cards. The author argues that introducing teens to credit cards under parental guidance can foster financial discipline and literacy early on. Here are key takeaways:
1. Building Credit Early: Teens can start building their credit score, which is crucial for future financial decisions such as loans and mortgages.
2. Learning Responsibility: Managing a credit card teaches budgeting, spending within limits, and understanding interest rates and fees.
3. Parental Control: With parental monitoring, teens can learn from their mistakes in a controlled environment.
According to a 2023 study by Experian, about 15% of teens aged 16-18 have their own credit cards. This figure has been steadily increasing as more parents recognize the benefits of early financial education.
Examples of When Teens Need Credit Cards:
– High School:
– Online Shopping: For textbooks, school supplies, or extracurricular activity fees.
– Emergencies: Unexpected expenses such as car repairs or medical emergencies.
– Travel: For school trips or family vacations where a credit card is necessary for bookings.
– College:
– Tuition Payments: Many colleges accept credit card payments for tuition, allowing students to build credit while paying for their education.
– Daily Expenses: Food, transportation, and personal items.
– Building Credit History: Establishing a good credit history early on can lead to better loan rates and financial opportunities post-graduation.
Credit Card Best Practices for Teens
1. Set a Budget: Encourage teens to set a monthly budget and track their spending to avoid overspending.
2. Pay in Full: Teach teens the importance of paying the full balance each month to avoid interest charges and build a positive credit history.
3. Understand Terms: Ensure teens understand their credit card’s terms, including interest rates, fees, and rewards programs.
4. Monitor Statements: Regularly review credit card statements for any unauthorized transactions or errors.
5. Use for Necessities: Advise teens to use their credit cards for essential purchases and not for impulsive spending.
Choosing the right credit card for a teen can set the foundation for a lifetime of good financial habits. Discover it® Student Cash Back, Chase Freedom® Student Credit Card, and Capital One SavorOne Student Cash Rewards Credit Card are excellent options that offer various rewards and benefits suitable for young adults. By starting early, teens can build credit, learn financial responsibility, and gain essential money management skills. Remember, as the CNBC article suggests, it’s crucial for parents to guide and monitor their teen’s credit card usage to ensure a positive learning experience.
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