A recent survey of 2,000 people has found that almost one-quarter of Aussies with a credit card are getting it before they have left their teenage years behind, with 16% applying for their first credit card at age 18 – the current minimum age at which Australians can apply for a credit card – and another 6% applying at the age of 19. While credit cards can be an extremely useful cashflow management tool, a credit card may not be a good idea for everyone, evidenced by the fact that Australians are currently paying interest on approximately $32 billion of credit card debt.
Such popular take-up of credit cards at a young age is potentially concerning, with financial literacy not currently a significant part of the Australian school curriculum. If parents are also not teaching their kids about how credit cards work and how credit card debt works, then some Australian kids are potentially setting themselves up for a lifetime of debt stress.
There are some credit cards specifically marketed at the youth demographic. Out of the credit cards on Canstar’s database specifically marketed at university students by the big banks, they all have no or a waived annual fee, but a fairly high interest rate if the outstanding balance is not paid on time.
The cards include:
|Company||Product||Annual Fee||Purchase Rate||Cash Advance Rate||Max Interest Free Days||Minimum Credit Limit|
|ANZ||First for Students||$0 for full-time students||19.74%||21.49%||44||$500.00|
|Commonwealth Bank||Student Credit Card||$0 for full-time students||19.74%||21.24%||55||$400.00|
|Westpac||Student Credit Card||$30 waived in first year||20.45%||20.45%||55||$300.00|
Source: www.canstar.com.au. Based on credit cards listed on Canstar database at 24/10/16.
According to Canstar’s Editor-in-Chief, Justine Davies, the potential danger of obtaining a credit card straight out of school is that kids with little financial knowledge get trapped in a debt spiral that sucks up a hefty amount of their first salary.
“They’re earning an income for the first time, they might be moving out of home with all the costs that come with that (and plenty of those costs they may not have budgeted for), they might have a car that they need to pay for and maintain, and it might be very tempting to put some of that cost on credit,” she said.
“Add to that the fact that a lot of young people are working casual or contract and so don’t have a guaranteed cashflow and you have a recipe for financial disaster – you really do.
“Next thing you know, there’s a big credit card debt, no way of paying off and potentially a trashed credit rating. They might not care about it too much at the time, but they’ll definitely care about it a few years down the track.”
Three tips for teenagers
When it comes to teenagers and credit cards, three tips to keep in mind are:
- Think about why you’re getting it. If it’s for functionality, a debit card does the same thing. If it’s for rewards points, be aware that you need to spend a lot of money to make them stack up. If it’s a “just in case” thing then save up a lump sum of just in case money instead. If it’s because you know deep down that you can’t afford your bills, then have a serious think about your living arrangements and current income.
- Make the decision with your eyes wide open. Australians are currently paying interest on around $32 billion of credit card debt. And the average credit card interest rate is 17 percent!
- Have a talk to your parents first. Ask them how old they were when they got a credit card, how they use their credit cards, whether they ever pay interest on their credit cards… You might find they have some good life experience you can learn from.