In Canada, you can’t get a credit card until you reach age of majority in the province in which you live. But credit cards (and credit card advertising) are so prevalent in our society, it’s definitely not too soon to start teaching your teen about the smart use of credit, even if he’s still a few years away from getting his own card.


Compound interest
Any discussion about credit cards should probably start with a lesson about the power of compound interest.


Here’s a simple one. Ask your teen if he would rather have a million dollars or a single penny with the power to double in value every day for the next 30 days. Unless he recognizes this as a trick question, he’ll probably take the million dollars. But the reality is, the penny will grow to more than $5 million in just 30 days.*


That’s the good side of compound interest. The bad side is what it can do to unpaid credit card balances. Tell your teen that using a credit card is like taking a short-term loan. If you pay your balance in full by the due date, it doesn’t cost you any interest at all. If you don’t pay it off, interest starts to accrue from the date of the purchase until payment in full is received. Each month that it’s not paid, interest continues to be charged.


Parenting expert Alyson Schafer puts it this way: “Interest is the price you pay for not having the restraint to wait until you have enough money to buy the things you want.”


Let’s say your teen wants the newest tablet computer. Explain that if you put it on a credit card, the minimum payment would be only about $15 month. It seems like a great deal, right? For $15 a month, he can have the tablet! But – and it’s a BIG but – he’ll end up paying more than $1,200 for it. Oh, and it will take almost 10 years to pay off. 1


And that brings up another reason to ensure you have the money to cover your credit card purchases. With the tablet, for example, he could still be paying for it even though some new gadget has come along to replace it.


Credit, used wisely, can be a powerful financial tool
Financial expert Alison Griffiths says once teens understand the high cost of carrying a balance, they are ready to learn about the benefits of credit. She cites three:



  1. Emergencies

  2. To guarantee reservations

  3. To take advantage of loyalty points and extended warranty benefits

 “These are all straightforward concepts that teenagers can understand,” she says. “Although, of the three, loyalty rewards are clearly going to be the most interesting to most teens.”


Griffiths suggests that if you have one of these cards, you can get your teen involved by having him track your points and keep a tally on how close you are to the rewards you want.


“When we bought our big-screen TV a couple of years ago, we paid for it with our loyalty credit card,” she recalls. “When our loyalty point statement arrived, the kids were excited to see all the extra points we’d earned toward our family goal (an all-inclusive trip to Mexico). When the credit card statement arrived, we made a point of paying it off with great fanfare. Our younger child even took a black marker and made a big tick mark beside the zero balance.”


This simple activity was meaningful to Griffiths’s kids (who doesn’t want a trip to Mexico?) and it delivered an important lesson: Credit can be very beneficial provided you can truly afford the things you’re buying.


Lead by example
Even without formally “teaching” your teens all the pros and cons of credit, rest assured, they will learn from your example – so make sure you’re setting a good one.



  • Let the kids look at your credit card statements. (Yes, even if it means you have to defend some of your purchases. “You went out for sushi without me?!?”)


  • Talk about the due date, what you do to remember it, and how you pay your bill (online, at the ABM, phone banking).


  • When you do pay your statement, be sure to mention it.


  • Don’t use a credit card to buy expensive or luxury items unless you are confident in your ability to pay for them, in full, at the end of the month, advises Griffiths. “If you don’t have enough, be patient and save up. If the kids say ‘Why don’t you just put it on your card?’ explain that a credit card without the cash to pay it off, is just an expensive way of borrowing money.”


Learn more…Review your own credit habits
It’s going to be hard to help your teen acquire a healthy respect for credit if you’re grappling with your own credit card usage. If you struggle to pay your full monthly balance or find yourself carrying a balance from month-to-month, talk with your BMO personal banker. There are lower-cost options that can help ease the burden of escalating credit card charges.


TIP: There is an online calculator that can calculate the potential credit card interest on a purchase.


Article by Kris Wallace.

Kris Wallace is a mom and an award-winning writer with more than 15 years' experience writing about personal and family finances from her home in B.C.’s Okanagan Valley.


*Actual value: $5,368,709.12


1Figures from the Financial Consumer Agency of Canada.