Kevin O'Leary: This is the biggest money mistake teens make

This is why teens should avoid credit cards, according to Kevin O'Leary

Millennials are often blamed for making some questionable financial decisions, like "Fomo spending," wasting too much money on avocado toast and renting instead of buying a home.

But Gen Z is already making money mistakes too.

"The biggest mistake teens make is the assumption that debt is free," Kevin O'Leary, financial expert and star of ABC's "Shark Tank" tells CNBC Make It.

"People use credit cards in a way that's really extraordinary. They assume that it doesn't cost anything to put anything on credit."

The truth is, however, most credit cards carry hefty interest rates if you don't pay off the balance every month. In October, CNBC reported that the average credit card interest rate spiked to 17.01 percent from 16.15 percent a year earlier and 15.22 percent two years ago.

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"The fact is, the interest rates on credit cards are astronomical. The returns there are so high, even I can't make that when I invest," he says, "which is why I invest in credit card companies.

"Don't let me make money on you."

Paying so much interest "is crazy," says O'Leary.

Instead, "Don't spend more money than you bring in. Very simple concept," he says.

And instead of giving a teen a credit card, give them a debit card. "That way, they can buy things with a card — they don't have to carry cash — but they can constantly check online how much money is left in the bank account. When there's no money left in the account, they can't buy anything, and that's a good thing," says O'Leary.

"That's how you start to understand: Don't spend more than you have."

A 2017 T. Rowe Price survey found that 44 percent of parents are extremely reluctant to discuss money with their kids. But talking about money and teaching kids the basics should start way before their teen years, O'Leary advises.

"I think kids should be taught at the age of 5 onward where money comes from," O'Leary says. "We do a very poor job in North America telling kids about finance. We teach them sex education, geography, math, reading, all kinds of learning skills, but we don't tell them about debt. No wonder they get into trouble as soon as they get a credit card."

"Debt is a bad thing. Understanding where money comes from is important," O'Leary says. "Make money a part of the family at the dinner table. Talk about where it comes from, how you make it and how hard it is to have."

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Disclosure: CNBC owns the exclusive off-network cable rights to "Shark Tank"

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