Does your teenager really need a credit card?

PHOTO: Pexels

Whether you’re thinking about issuing a supplementary card or applying for a student credit card, letting your teenager have their first credit card is certainly safer than carrying cash.

On the other hand, leaving a credit card in the hands of a teenager could pose risks such as overspending or sharing card details. To help you decide whether your teenager is ready for a credit card, keep reading for key points to consider.

Pro: Your teenager can access funds in case of emergency or when travelling abroad

Giving your teenager a credit card can be helpful in case of emergencies when there are last-minute needs such as purchasing medicine or a phone charger.

Also, having a credit card can be especially useful if your child plans to study overseas or travel abroad after the pandemic. Carrying foreign currency can also be cumbersome and unsafe, especially in countries where pickpocketing or theft is common.

Pro: Earn rebates and perks for more savings

Many student credit cards are designed with user preferences in mind. This means that if you choose the right credit card for your teenager, they will enjoy extra perks when they spend at their favourite places such as McDonald's, Golden Village, and Starbucks.

These credit cards may offer even more savings with rebates, annual fee waiver, and options to earn miles.

For example, the Maybank eVibes Card offers students one per cent rebate on all spending with no merchant or category restrictions, making it incredibly easy to maximise cashback.

Additionally, students can access Maybank’s TREATS Programme, which offers everything from $1 meal coupons to discounted amusement park tickets.

Con: Your teenager may run the risk of overspending

PHOTO: The Straits Times

Overspending is common among adults and it can be a problem for teenagers too. When using a credit card, it is easy to lose track of how much we’re spending because we are not dealing with cash. The problem of overspending can amount to a larger issue when unpaid debt is charged with interest.

The average credit card interest rate in Singapore is about 25 per cent per annum and if your teenager doesn’t know how credit card interest rate works , they may end up with significant debt within a short period.

ALSO READ: 4 things to do immediately if your credit card details get stolen

Con: Incurring annual card fee

There is usually no fee for issuing an additional supplementary card ; however, most student credit cards and young adult credit cards do charge an annual fee. To make it worth your while, try to select cards that offer free or waivable annual fees for more savings.

Here is a list of the best student and young adult credit cards with the best annual fee offers:

What are the best credit cards for teenagers in Singapore?

Types of Credit Card Student Credit Card Annual Fee Fee Waiver
Maybank eVibes Card $20 Two years
DBS Live Fresh Student Card $192.60 Five years
Citi Clear Card $29.96 One year
Standard Chartered Manhattan $500 Card $32.10 One year

Identify what kind of card is best for your teenager

Choosing the right credit card depends on your teenager’s lifestyle, preferences, and the perks that come along with the credit card. A student credit card has a minimum age limit of 18 to 21 years old and a $500 spending limit.

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4 types of credit cards with lifetime annual fee waivers
4 types of credit cards with lifetime annual fee waivers

This ensures that only mature teenagers can apply for the credit card. It also protects the bank from default risk since these card owners may not yet earn an income to fulfil monthly repayment.

Overall, student credit cards give parents better peace of mind and control of the credit risk.

Alternatively, offering your teenager a supplementary card can help you save on additional annual fees; however, you’ll be liable for any late payments or unpaid debts from the supplementary card-holder.

On the bright side, you’ll get a complete overview of your teenager’s spending habits and be able to help them learn how to make smarter budgeting decisions.

Set a credit limit to prevent overspending

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Setting a limit on the credit card is the first step before letting your teenager have a credit card. While it is important to trust them, you’ll also need to exercise financial prudence.

After all, teenagers are less financially savvy and they may not be mindful of potential pitfalls such as the consequences that come with defaulting on payments. It’s important to explain the principles behind credit card interest rates and the mechanics of how interest rates work .

ALSO READ: Best credit card hacks to go with your choice of 'buy now, pay later' service

Define what the credit card can be used for

Having a new credit card can be an exciting experience and this may tempt your teenager to use it without giving purchases a second thought.

As a parent, you’ll need to make sure your child is financially responsible and understands what the credit card can be used for. Start with a clear, defined list of what the credit card can and can’t be used for and be sure to set limits for different spending categories.

Doing this will ensure that your teenager will take a more mindful approach before he or she uses their credit card.

This article was first published in ValueChampion.