Credit cards can be a great way to teach teenagers about the importance of money. Although the very idea of putting a significant sum of money into an emotional young person’s hands may spark anxiety for some, teenagers can learn a lot about financial stability with a credit card.

In the UAE, anyone over the age of 15 (min. age varies depending on each bank) may use a supplementary or add-on credit card that is linked to a primary account, such as that of a parent or guardian. Such supplementary cards typically share the primary holder’s credit limit. In other words, the primary holder is responsible for any debts on the add-on card.

Money lessons in a controlled environment

For the teenager, credit cards offer the opportunity to learn about finance under the supervision of a responsible adult, in what is effectively a controlled environment. It can be helpful for parents to set a few ground rules in advance, such as where the card may be used, what expenses can be charged and the limits on each.

With the UAE’s high-octane lifestyle on constant display, it often seems like temptation lurks around every corner and on every social media network. With easy access to designer labels, expensive restaurants, and other attractions in the UAE, it can be easy to overspend.

As with other aspects of parenting, an open discussion around the use of the card on a regular basis – perhaps each time a statement becomes available – can help build confidence, prevent misuse, and make it easier for the teen to ask for help or advice.

Like everything else in life, there are pros and cons to credit cards and understanding both aspects is vital to responsible financial management.

Advantages of credit cards for teenagers

Using a credit card in this sort of controlled environment carries several advantages for teenagers in the UAE.

• Learning from experience: Research shows that lessons learnt through personal experience are more effective than simply being given information or advice. In other words, we learn by doing. Owning a credit card gives teenagers a sense of responsibility around money. They learn about paying their bills on time, staying out of debt and what it takes to establish a good credit score.
• Emergency help: Perhaps the most important reason for giving teenagers a credit card in the UAE – or anywhere – is that they always have money for an emergency. Whether this is a car issue, a last-minute university payment or a sudden medical consultation that isn’t covered by insurance, a credit card can help teenagers pay for sudden expenses.
• Establish credit history: The UAE recently began tracking individuals’ credit scores, which help lenders determine a person’s creditworthiness. By giving teenagers a credit card, they’re taught to practice maintaining a strong credit history. This will help them in the future when they want to get loans / pay rent etc.
• Track financial outgoings: Giving a teenager a credit card gives parents a sense of what their child is spending money on. A quick look at the monthly statement indicates a teen’s priorities and enables parents to step and avert what could become a major crisis down the line. For the child, simply knowing that their parents are overseeing their expenses works as a deterrent to spending money on prohibited items.
• Earn rewards on spending: Depending on the credit card, the primary account holder may also benefit by way of spending rewards in terms of cashback or potential air travel vouchers. Any purchases made by your teenager could increase your own rewards balance.

Disadvantages of credit cards for teenagers in the UAE

Credit cards aren’t for everyone and may prove to be a downfall for some teenagers. In some cases, a debit card may be more suitable.

• Distorted value of money: A major criticism of credit cards is that they promote instant gratification. Teenagers who can pay for any item they want with a tap may not realize what it takes to earn the money that funds that purchase. If a young person doesn’t understand how work impacts spending power, perhaps they aren’t ready for a credit card.
• Poor impulse control: Teenagers are at a stage in life where they’re still figuring out their emotions and only just beginning to understand the world around them. Those with unrealistic expectations and an unclear idea of consequences may need a tight credit limit so as to avoid dealing with the fallout of rash and expensive decisions on a regular basis.
• Accumulating debt: With a high credit card limit, it can be easy to build up equally high debt. Besides being hard to pay off, large debts could also affect the credit score of both the teenager and the primary card holder. Again, tight limits can help.
• Procrastination is easy: The convenience of a credit card means you don’t have to settle your bills until the end of the month. Hence, setting a reminder could help you remember to pay your bills on time.

How to prepare teenagers for credit cards in the UAE

As we have seen, the proper use of a credit card comes with several benefits. As a parent, you can prepare your teenager manage this step into adult life positively:

1. Set a budget in advance: Sit down with your child and help them create an itemized spending plan, taking into account essential items as well as fun expenses such as cafés, concerts, or clothes. Help them understand how to stagger large purchases on instalments, and the impact of any interest thereon. Agreeing a predetermined personal profit and loss account teaches financial management, improves decision making and identifies problems before they occur.
2. Understand interest rates and charges: Different credit cards come with different interest rates and fees. The impact of the different rates on purchases offers a true picture of how much credit can cost over time, while teaching individuals how to evaluate different financial offerings
3. Balance the books on a regular basis: Evaluating a teenager’s credit card spending regularly can serve as a financial education and help them manage their finances in later life. Parents can also use the opportunity to explain the concept of value, offering deeper insight into the role of money. Credit card statements offer the opportunity to have regular financial conversations around money.
4. Let teenagers pay for their purchases: Perhaps most importantly, let your teenager pay their own credit card bills from their allowance, and if necessary, by covering the interest when they can’t pay off their purchases in full. Funding their own lifestyles can serve as a valuable financial lesson.

For teenagers in the UAE, credit cards can provide a strong grounding in financial management, while teaching them the value of money when used prudently. These are lessons that will stand them in good stead over the course of their lives.

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