Why teens should have credit cards

Worried that if teens have credit cards, they’ll over-spend and harm their credit scores? I think the risk is worth taking because of the potential upside.

We could be doing a lot better at managing credit as a country. Our credit scores are good, and we’re doing fine at paying debts on time. But polls and surveys consistently show that people are feeling high levels of financial stress, with debts being a major contributor. Too many people have borrowed more than they can handle.

Giving credit cards to young people in their late teens and early 20s could make this situation worse, but I think the opposite is more likely to happen. A young person with a credit card with a very low spending limit has an opportunity to learn how credit works, with a contained level of risk. Some parents are already using cards to teach kids about credit, often for students who are out of town attending university or college. Check out a recent conversation about this on my Facebook personal finance page, posted Sept. 9.

Work with your kids to help them manage their credit cards. A tip I use myself and have suggested to our two sons is to pay off card expenses as they come up rather than waiting until month’s end. I pay off a card bill for dinner at a restaurant the next day, for example. Paying as you go reinforces the idea that credit cards are a convenient way to pay for things, not a magic source of money.

The ultimate credit-card lesson is to avoid carrying a balance. It does happen, though. So stay in touch with your kids to see how they’re doing with their cards. Teach your kids to fix over-spending problems before they blow up into something bigger.

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Rob’s personal finance reading list…

Six signs you’re a good saver

A helpful checklist that does a good job of encouraging people to save.

Five mistakes rich people keep making

Do not assume that a high income means financial success. People who make more often spend more.

Read this if you’re unhappy with your RRSP account

A look at how to transfer a registered retirement savings account from one financial firm to another while avoiding fees.

Please tell me you have a will

Lots have ignored this basic step in financial and estate planning, despite its importance. If you’re in this group, here’s a look at two online solutions for creating a will.

Ask Rob

Q: What are your thoughts on borrowing to pay for house renovations? In the current real-estate climate in Toronto, renovations seem like the only affordable option to upgrade.

A: A reno can be a cost-effective way to upgrade a home, as long as you don’t create a perma-debt on your home-equity line of credit. In other words, don’t borrow so much that you end up paying only interest and don’t meaningfully reduce the principal. I suggest you aim to borrow an amount that could be paid back in one to three years through regular monthly payments of principal as well as interest. Focus on renovations that add value to your house; here are 25 renos that do the opposite.

Do you have a question for me? Send it my way. Sorry I can’t answer every one personally. Questions and answers are edited for length and clarity.

Today’s financial tool

This interactive tool for comparing the cost of various university degrees by field of study was created by Statistics Canada.

Tweet of the week

In case you think a rising population will keep real-estate prices moving ever higher.

What I’ve been writing about

• This country needs to help renters more than it needs another program to help home buyers
• This could be the all-time most ignored piece of personal-finance advice
• Investors who like their ETFs simple and cheap have some new choices for covering the Canadian market (for Globe Unlimited subscribers)

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