What High School Students Need to Know About Credit Cards

What High School Students Need to Know About Credit Cards

Did you know a survey found that 32% of teens don’t understand the difference between a credit card and a debit card?

This highlights the growing financial illiteracy among young people and the importance of teaching teens about credit sooner rather than later. Fortunately, adding this education to the high school curriculum is easier than you might think, thanks to Everfi. These free courses can help them learn the most important things for students to know about credit cards, and over 1 million students learned critical credit skills through these courses last year!

Main Takeaways

• Early credit behavior can significantly impact students’ future lives.
• High school teachers can make a difference by offering specific lessons on topics such as credit cards and general financial literacy.
• Everfi offers free resources that teachers can use to integrate financial lessons into almost any discipline.

Table of Contents

1. Why Credit Cards Matter for Teens
2. What Is a Credit Card and How Does It Work?
3. Why Is It Important for Students to Learn About Credit Early?
4. What Should Students Know Before Getting a Credit Card?
5. How Do Credit Scores Work and Why Do They Matter?
6. What Are the Risks of Using Credit Cards?
7. How Can Students Use Credit Cards Responsibly?
8. What Are the Best Ways for Students to Start Building Credit?
9. What Should Teachers Know About Teaching Credit Card Literacy?
10. Empowering Students to Make Smart Credit Decisions

Why Credit Cards Matter for Teens

Why are credit cards so important for teenagers? Simple: These cards are usually a teen’s first exposure to the concept of borrowing money. And what these kids learn today may impact their borrowing behavior as adults. By educating them early enough, teachers can reduce the risk of their students later developing poor credit or landing in major debt.

It’s important for teachers to offer practical, real-world advice about credit cards rather than treating this as a math lesson. Fortunately, Everfi offers free financial literacy resources for teachers that have been designed for the classroom. By integrating these free lessons into the existing curriculum, teachers can provide the direct financial guidance that students deserve.

What Is a Credit Card and How Does It Work?

For teens, it’s important to cover the fundamentals, including what a credit card is. They need to know that a credit card allows them access to money now that they will have to pay back later. This is distinct from a debit card, which simply provides a convenient way to spend money out of a banking account without having to write a check or manually withdraw money.

Some of the most important things for students to know about credit cards include the importance of keeping up with their credit card statements and paying their balance in full whenever possible. Most teens don’t realize that interest adds to the existing debt, forcing them to potentially pay back far more than they initially borrowed. But by never spending more than they can easily pay back, teens can master the art of how to use a credit card responsibly.

Why Is It Important for Students to Learn About Credit Early?

There are only so many hours in a school day, which leads to the big question: Why should teachers focus on teaching teens about credit? In short, teachers are responsible for providing students with the knowledge to build a better future for themselves. And a student’s credit history can affect future opportunities in major ways, including whether they can get a good car loan or buy a house.

After receiving the right lessons early on, students can begin responsibly building their credit as early as high school. They can also learn more about the risks of credit card misuse (including accumulating debt, paying late fees, and developing a poor credit history) and how to avoid them. Teachers should also educate students about the CARD Act and the consumer protections it provides, especially against predatory marketing aimed at young people.

Remember, though: Those governmental protections are still no substitute for receiving proper lessons about credit card use at a young age!

What Should Students Know Before Getting a Credit Card?

Before obtaining a credit card, students should be aware of the age and income requirements, specifically that while they can apply for a card at 18, many card issuers will require a cosigner unless the applicant is 21. They may also require proof of income to verify that a borrower will be able to consistently make payments.

Teens wanting to build a credit history early should know they can cosign with a parent or guardian and still be an authorized user on the card. And those worried about borrowing more than they can pay back can opt for a secured card, which is “secured” by a fixed amount of money that serves as the maximum borrowing amount.

When students are serious about getting a card, they need to know how to get free quotes online and decide which one is best based on factors such as annual percentage rate, rewards, and terms. Speaking of terms, they need to know how to read and understand the cardmember agreement to avoid any unpleasant surprises. With Everfi’s free financial literacy resources for teachers, students will learn all of these important lessons and so much more. For example, those who completed the Everfi Financial Literacy course experienced an average learning gain of 28%!

How Do Credit Scores Work and Why Do They Matter?

Students must learn how important their credit scores are to their lives. Scores are calculated using several factors, including payment history (it’s very important to pay on time), credit utilization (how much credit someone is using versus how much they have available), and length of credit history (having a more established credit history can increase the score). EVERFI – Financial Literacy can help: After completing it, 17% of students feel more prepared to check credit scores and maintain a healthy credit rating.

Teachers should emphasize that one of the most important things for students to know about credit cards is the importance of making payments on time. This keeps their balances low, which can naturally build a healthy credit score. To drive the point home, use Everfi’s credit score simulator (one of the best free financial literacy resources for teachers) or resources such as the Build: Credit Fundamentals course. Those who completed this course experienced an average learning gain of 35%! Additionally, 47% of students who completed this course feel more confident when evaluating different credit offers.

What Are the Risks of Using Credit Cards?

When students need to buy something and don’t have the money, credit cards may seem like a perfect solution. However, they need to be taught that using credit cards involves navigating serious risks such as overspending and accumulating debt. It’s tempting for young people to only make minimum monthly payments, but this is how interest compounds: For example, someone who spends $500 in credit and only makes minimum monthly payments may need 17 months or longer to pay it off, and they might end up spending nearly an additional $100 in interest!

Therefore, teens need to be taught how to use a credit card responsibly, which means only purchasing what they can afford to pay off in one or two months. This helps them avoid late fees, interest rate changes, and credit score damage. Without these lessons, teens may effectively dig themselves into a financial hole that is nearly impossible to dig their way out of.

Regardless of how much (or, ideally, how little) they spend, teens need to know about the risks of identity theft and fraud when it comes to credit cards. Many nefarious people try to steal teenagers’ data to create fake identities and apply for credit cards. This is easier to do with teens because their credit history is less monitored. Sadly, it can take months (if not years) to undo the damage this can do to a teen’s credit score.

How Can Students Use Credit Cards Responsibly?

Teachers must emphasize to students that credit cards can be an important tool as long as they are used responsibly. That responsibility begins with setting spending rules (like not spending more than a certain amount on something) and paying the balance in full each month whenever possible. Obviously, these go hand-in-hand: If someone puts a hard limit on how much they spend each month, it’s easier to pay the whole thing off.

Students should be taught about the various apps and online tools that can help them budget and track their spending. For emergencies, they may occasionally need to go over their spending limits. But using these apps and monitoring statements can help them stay under their credit limit and get things back under control as soon as possible.

What Are the Best Ways for Students to Start Building Credit?

Instructors should teach students that there are safe, easy ways to begin building credit at a young age. With permission, they can become authorized users on their parents’ card, allowing them to naturally build credit even without spending money. They can also make a small deposit and get a secured card, which allows them to build credit without worrying about getting into debt.

Of course, for most students, the easiest way to build credit is to make small purchases and then pay them off each month. That way, their credit score improves, and they never have to worry about debt. By learning these lessons early on, students can become more responsible credit card users later in life. Teachers wanting to offer these lessons should download Everfi’s financial literacy toolkit, which is optimized for the classroom setting.

What Should Teachers Know About Teaching Credit Card Literacy?

Before teaching students what they need to know, teachers must know what students don’t know about credit cards. For example, students often have trouble understanding APR and its role in the accumulation of debt. And they may have trouble understanding what terms like “grace” period mean and how late fees are tied to credit card billing cycles.

To help educate students, it’s important to use real-life scenarios that illustrate how “cheap” purchases can become expensive if someone only makes minimum payments and how quickly compound interest can add up. To drive these points home, teachers should integrate Everfi’s free financial literacy lessons for high school students. These courses are already aligned with state and federal standards and are ready to use “out of the box” with no additional prep time necessary. And they are very effective: Those who have completed the Minding Your Money: Skills for Life course received an average learning gain of 39%!

Empowering Students to Make Smart Credit Decisions

Students don’t need to be afraid of credit cards. With the right instruction, they will realize these are powerful tools that can transform their lives for the better. Before that can happen, though, it’s important for teachers to help them develop lifelong financial habits.

And Everfi is here to help teachers easily integrate financial literacy into the classroom. Important resources, such as the financial literacy toolkit, can help explain the most important things for students to know about credit cards. It can help teachers hit the ground running with lessons about credit cards, responsible spending, and so much more. And with the other financial literacy resources available from Everfi, it has never been easier to instruct students about responsible spending.