Teaching kids about credit cards

There may be no more important job we have as parents than teaching our children financial responsibility. But the fact of the matter is, it’s a real uphill battle. Schools don’t teach managing personal finances at any level, and of course we are subject to our own imperfect fiscal training and experiences as well. So how do we show our kids the way, when we may be well struggling with these issues ourselves? The answer lies in doing something, anything, to help prepare your children for their future, no matter how complex the issue may be. The average American is more than $15,000 in credit card debt, so clearly we are losing the battle right now. But that doesn’t mean we are allowed to give up. Here are a few ways you can teach your kids about credit cards and debt.

For most younger children, their first experience with financial planning involves the allowance they get for doing chores. Even if it’s only a dollar or two a week, setting up an allowance system is an integral piece of preparing them for their future. One great way to help them move forward is to create a structure that rewards savings. One example would be to give them specific chores that earn individual bonuses, and for each dollar they save in a given week, you match it. Whether it’s just in a piggy bank or a real account, getting them excited about watching their savings grow will surely help keep them responsible later in life. The important part is to give them the freedom to choose savings or spending. They won’t learn anything if you dictate the terms.

When your kids are a bit older, you can set up a structure that gives them the opportunity to experience debt. Obviously you don’t want them to make any choices that will harm their future, so manage it in house and not with a credit agency. Again, focus it around their allowance, but open up the option of ‘borrowing’ from you to increase their weekly take. Actually set up an interest program, based around adding hours of chores for each week they don’t pay you back. If they get in too deep, they could face more chores than they can handle. That will spark a conversation, and you can point to the parallels with true credit debt, showing them what they could be facing later in life. You may have to let them dig a bit of a hole until they learn a lesson, but rest easy knowing that failing now will help them succeed as adults.

Once your kids are teenagers bordering on adulthood, you’ll have to face getting them a credit card. Now is the time to start a much more specific education. Talk to them about debt, and the consequences it could cause. Pull out your credit card agreements and show them how they work, pointing out not only the interest rates, but all the penalties they could suffer if they miss payments. Print out a copy of your credit report, and explain it to them so that they’ll be prepared to read their own. Describe how building credit works, and some of the issues that will arise if they have a poor credit score. Once you feel like they are ready for some more responsibility, hop on CreditCardCompare.com.au or any related site and look into all the available options. If your child is clear that building credit is about consistent, small purchases you pay off each month, and beyond that will only use the card for emergencies, they are probably ready to start their own financial life. And you’ll rest easier knowing you’ve done all you can to prepare them.

 

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Comments

  1. romario|MastercardCpitalOne says:

    Good article,it really is to important to teach children how to use credit cards,they require standards and discipline.I’ve earn my way through here,I’ve had many Credit cards before,but i decided to pick the best and only one I need,master card Capital One.