What You Can Teach Your Kids about Credit

Are you teaching your children how to handle money but not how to handle credit? It is certainly tempting to try to protect your kids from money mistakes by keeping them away from credit cards—or by not talking about credit at all. However, by doing so, you might be missing an important teaching opportunity.

Believe it or not, you can start talking about credit fundamentals when your kids are quite young. Your explanations can then become more detailed as your kids get older and are better able to understand the nuances of credit reports, identity theft, and credit scores.

When to teach kids about credit

Here’s a breakdown of what topics you might want to discuss with your kids and when it might be appropriate to introduce them.

Early elementary school

  • Stick with cash. Young kids need to learn about money management by counting and using real money. Dollars and coins are usually easier for them to understand than credit.
  • Introduce budgeting. As children earn their allowance, they should also learn how to make that allowance last. Help them categorize their earnings into spending and saving money, and encourage them to set spending limits to keep them on track.

Middle to late elementary school

  • Prep for their questions. When kids start asking about credit cards, that’s your cue that they are interested and ready to learn more. For instance, your children may ask how the money “gets onto” your credit card. Or, if you mention not buying something because you can’t afford it, your children may quip, “Why don’t you just use your credit card to buy it?” These are great teaching moments.
  • Explain how credit works. Clarify for your imaginative children that there is no actual money “on” your credit card. Explain that it is a tool that allows you to borrow money instead of having to carry cash. Emphasize that the money you are borrowing is not free because you have to pay it back every month. If you don’t repay all of it at once, the company will charge fees, or a percentage of what you borrowed in interest.
  • Talk about being “graded.” Explain to your children that a credit history is a little like a report card. When you maintain a good credit history, you may pay lower interest rates. If they are interested, show your children how you can check your credit report for free by contacting Equifax.
  • Show and tell. Occasionally show your children your credit card statements. Point out to them how long it will take to pay off your balance and how much extra you will pay in interest if you only make the minimum payment each month.
  • Offer hands-on credit lessons. If your children ask for their next allowance early because they already spent all of their money, talk to them about budgeting and how credit works. Consider loaning your tweens the money and charging a hefty interest rate so they understand there is always a price for borrowing.

High school

  • Check it out. Once your teens are working, consider helping them open a checking account (with you as a joint account holder) and possibly attaching a debit card to the account. This is the time to explain the difference between debit and credit cards because they probably seem identical to your kids.
  • Get real about identity theft. Make sure your teens know to be cautious about any personal information, and let them know they can refuse to share this information—even at the doctor’s office or school. Explain how identity theft can happen and how scammers can use personal information to apply for credit in their name, and point out that when the identity thieves don’t make payments, it could impact your teens’ credit scores.
  • Create a digital budget. Getting kids to budget can be difficult, so consider finding a digital budget that’s easily accessible online or on their smartphones. Good budgeting is the best defense against irresponsible credit use.

Senior year of high school and college

  • Introduce a credit card with training wheels. If you haven’t already done so, you may want to consider opening a credit card account during your teens’ final year of high school and making them authorized users on the account. If you keep the credit limit low and monitor the account carefully, you can intervene or even close the account if your teens do not prove to be responsible. If your teens practice using a credit card, including making the payments, they may be better prepared to face credit temptations in college and afterward.
  • Talk about student loans. With college around the corner, now is the time to talk to your teens about how student loans can affect credit. This is a great opportunity to explain that there can be good kinds of debt, as long as your children only borrow what they can realistically afford and always make on-time payments.

It may seem like kids are too young to understand credit, but the sooner they start learning, the better. By teaching them early to use credit responsibly, you may be able to help them avoid some common credit mistakes, such as missed payments or overspending, that can occur in early adulthood.

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