When your children were younger they probably couldn’t wait to learn to ride a bike or how to swim, on the other hand they might not have been so interested in disciplining or bed time. Well, now that they’re older things may not have changed much - there are certain lessons they may not be as eager to learn.
Covering some essential money habits with your kids is an important part of growing up. Without them their early adulthood years could be troubled with serious transgressions. Finding ways to teach kids about credit won’t always be fun, but it is pretty easy and in the end it’s in everyone’s best interest.
Talking about money may come naturally with some children, and with others conveying the basics of budgeting could be like teaching trigonometry. Here we cover a simple roadmap that will allow your child to learn the ropes of financial independence.
Start with a Debit Card
You have to learn to crawl before you learn to walk, as the saying goes. Problems could pop up if you go straight to credit cards, leaving you to foot an expensive bill. Instead, consider starting with a debit card where they can learn the basics of how to manage their spending in a clearly defined budget. Review their account statements together. It’s also a good time to talk about the differences between needs and wants.
Show Your Teen Your Credit Card Terms
After they’ve demonstrated proficient use of their debit card and successfully avoided overdraft fees, the next step would be to consider adding them as an authorized user to one of your credit cards.
This gives you the chance to delve into the details of how credit works. Topics such as interest rates, annual fees and repayment strategies are ripe for discussion. After all, you will want them to make informed purchasing decisions just like you.
Explain how responsible payment history and running up high balances will impact your credit score, and how a poor credit score comes back in the form of bad auto loans or high interest rates and even big security deposits on a new apartment.
Handing Over the Reins
Depending on their income and how financially responsible they’ve proven to be, eventually it’s a good idea for him or her to secure their own credit card. Believe it or not, it’s best to start building a solid credit score early in life.
Be there as a guiding force, providing supervision as your children learn first-hand how to manage credit and money responsibilities. It will help them be successful with their financial decisions later in life.