Talk financial terms with your teens – Part 3

Play the right card when dealing with debit and credit cards.

Credit cards

In Part 1 and Part 2, we discussed several financial terms teens should know. In this article, we continue on with the terms debit card and credit card. These may be familiar terms and your teens may already have experience with these money sources, but it’s still good to review and look for better ways to play the right cards.

Debit cards

Also referred to as a check card or bank card, debit cards are essentially like writing a check from your account. The money comes directly from a bank account immediately. Debit cards pay little to no interest. They may also allow you to access an ATM for cash withdrawals. The benefit to you is you don’t have to carry cash and they are generally accepted anywhere credit cards are used.

Some things to consider are protection of the card, minimum and maximum purchase amounts and surcharges of fees associated with the card. Many major banks offer these types of cards and it is good for youth to start to become familiar with them. Online banking and phone notifications help youth realize their money is moving when they make a transaction. They might not experience this like they would with cash physically leaving their wallets, but electronic transactions will be the norm in the future.

Credit cards

Credit cards allow the cardholder to receive the goods or services now in the promise to pay for them in the future. The bank or issuer of the card will front the money on the date of purchase and the cardholder can then make the payment later, usually monthly. However, here is the catch: If you don’t make the full payment on the due date, the bank or issuer of the card charges you interest on the balance of the payment you owe them. This rate can be low at first and raise later the more debt you carry. Some interest rates can be up to 29%!

What is the benefit to you? If you treat credit cards like debit cards and don’t spend money you don’t have by paying them off in full each month, you pay no interest on them. If you spend $150 and you pay the bill of $150 at end of the month, it costs you nothing. Youth can use this to their advantage. Here is how.

Some credit cards have perks attached to them. Cash back, points, frequent flyer miles, savings on gas or rewards and discounts at stores are all some of the awards they may offer. Those savings and discounts add up.

The other benefit to using a credit card and paying it off on time in full is that you keep your money in your account (sometimes earning interest) for a longer time. This may be only a small amount, but those little savings add up. Another benefit of the credit card is you don’t have to carry large amounts of cash with you. This can benefit you while traveling or purchasing an expensive item.

Please do your research on the credit card that best suits you or your youth. Some cards attach a yearly fee while others don’t. Look out for low introductory interest rates and those that increase after a period.

In Part 4, I hope to peak your interest on interest and how it can work for you. Let your money work to make more money. It’s a great lesson for all youth and they have the big advantage to this. Time is on their side.

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