Usually the product is the star in transactions, but attention also needs to be paid on how people pay, especially as a teen.
Despite appearing similar, debit and credit cards handle money differently. Credit cards borrow money while debit cards use money people already have. According to the Federal Trade Commission, credit cards charge a bill every month, whereas debit cards take money directly from a checking account so as interest is not charged. The Insurance Information Institute shared how credit history is the general record of how you handle finances such as payment history. Credit report summarizes the history in a detailed manner. Meanwhile, a credit score or FICO score is a calculation based off of the report consisting of three digits that demonstrate credit-worthiness. Interest charge may increase for credit cards if the whole bill is not paid every month. Credit card builds credit history by paying the bill on time, especially if the whole bill is paid every month.
“I think a teenager should start with a debit card, because then they can learn how to responsibly budget and be in charge of their money,” Advanced Placement (AP) U.S. History teacher Ramie Macioce said. “[This is] because with a debit card, you have to have the money in order to make a purchase, whereas with a credit card you’re essentially taking out a loan and borrowing money. So I think once a teen turns 18, they should get a credit card, because they already have a basis of how things work.”
Teenagers seemingly agree as according to Next Gen Personal Finance, 40% of teenagers from 13 to 17 own their own debit card, whereas 19 percent hold a credit card as an authorized user under their parent or guardian’s account as of 2020. Teenagers are given access to these accounts and debit cards for numerous reasons, one of which is travel.
“I use a debit card, and I first got it because of traveling to make it easier,” freshman Amy Conway said. “I traveled on my own for a little bit, and it’s also just easier for transferring money.”
The transferring of money on debit cards differs in credit cards as it tends to lack interest rates, high fees and bills. Instead, there is direct access to funds.
“I personally use a debit card because I don’t have to really pay attention to billing because I’m not as responsible,” investment club co-president and sophomore Toby Yuen said. “I’m not as responsible, and I don’t want to risk messing up my credit score right now.”
One can still be forgetful and responsible with automatic credit card payment which can be set to pay the bill from an account. The National Public Radio says that 46% of credit card holders carry debt, however the other 56% are benefiting from paying the whole bill at the end of the month. In paying in full they will not have to pay interest and possibly even increase it and damage credit.
“It depends on the student, if the student and the family are able to make regular credit card payments in full, then they should use a credit card,” investment club advisor and AP World History teacher Kelly Dolan said. “In paying off their credit card debt in full regularly, they will start to build up that individual’s credit score. This makes it easier for them to borrow money in the future, which is usually at a lower rate than if they had a worse credit score. All of us end up borrowing at some point.”
Banks and credit unions offer credit cards. According to the Federal Trade Commission, one must apply to get a credit card and their credit history is evaluated along with score or FICO. This is to decide if one is granted a credit card and if so how much the interest and fees will be. A creditor is an entity or person who is owed money, and the person who owes the money is called a debtor.
“Although all different sorts of debt and credit arrangements can be worked out, if you are the debtor, then the person is the creditor,” Dolan said. “You can be the creditor as well, which is really fantastic, and usually for us normal people, that takes the form of lending money to your bank.”
In choosing a credit card from a creditor, such as a bank, it is suggested to look for what offers the lowest or no annual fee to use the card every year. It will also have a low annual percentage rate or the amount of interest paid in a year, and lower fees for things such as paying late or exceeding credit limit.
“I just try to understand how to spend responsibly,” Yuen said. “Also, making sure you have a flow of income of any kind is definitely really important, so that you’re also having incoming money and not just spending.”
Some credit unions and banks have overdraft protection which allows one to use their debit card when they run out of money, which can happen if they do not have an income as Yuen suggests. However, they are charged with an overdraft fee and have changed interest. However, there are measures and advice teenagers take to effectively manage their finances in credit and debit cards. Woodside students have a variety of approaches to help in their financial management. Meanwhile, Conway takes a different approach with her family.
“I have monthly check-ins with my mom and we go over what I’ve spent,” Conway said. “[As well as] what I should continue to be spending on and what I shouldn’t.”
Despite the amount of students who use credit and debit cards, the National Endowment for Financial Education says, as of August 2024, only 26 states require high school students in the U.S. to take a personal finance course in order to graduate. Many of these states are still in the process of establishing these courses. A challenge students face in understanding how credit or debit cards work is because of a lack of personal finance education in our schools, Dolan said.
“It is not a requirement in California that all of you get any explicit instruction in personal finance, which is why so many of you found teachers in senior year incorporate personal finance into their classes,” Dolan said. “Although, that’s difficult for us to do because we have other curriculum required to cover.”
California is one of the states that will now require personal finance courses, so it will be easier for teachers to ensure students get the knowledge they need. California is the latest state to do so. According to California.gov, there is legislation that requires a semester-long course on personal finance education to be accessible to all California high school students by the 2027-2028 school year. It also requires California high school students to take personal finance as a graduation requirement beginning with the 2030-31 graduating class. However, teachers currently still tackle the problem if there are no personal finance courses at their school.
“We teach economics here, but in the standards, it doesn’t really talk too much about personal finance, but there are ways you can infuse some personal finance in the economics course,” Macioce said. “For example, with my students right now, we just did a cost benefit analysis of shopping for an apartment. So that’s a real life situation with real life numbers and math and looking at real life apartments. There’s ways you can infuse it in there.”
Teenagers can use the information they learn about debit and credit cards in economic courses and apply it to themselves to spend responsibly and establish a good financial future.
“Money and spending is based a lot on behavior and habits,” Macioce said. “As teens just maybe have a little bit of money and can establish good habits and good behavior and form a good relationship with money. Then, as they get more money, those things are already embedded.”
