Teaching Your Kids About Credit

Almost every credit card approval letter begins the same way: “Congratulations!” From the misleading greeting, a young, impressionable mind would think the $5,000, $10,000, or $20,000 credit limit just approved was nothing but a gift. Instead, the greeting should read: “Warning!” After all, a new line of credit is little more than a new chance at deeper debt.

Yes, credit is a tool. It has its place. But just like a saw, hammer, or drill, credit is a tool that can also do damage if misused.

According to a recent report from the credit authorities at Experian, Americans have an average of $22,751 in available credit. That’s $22,000 is potential debt. $22,000 in potential bills. And $22,000 of potential misunderstanding by the kids who witness our transactions.

Beware of Your Child’s Concept of Credit

Assumptions are a tricky thing. After all, much of what a child assumes rarely comes up in conversation. They just believe what they believe, until something contradicts it. But a child’s assumptions about credit cards can be a little dangerous, financially speaking.

For a child, money is usually tangible. Their money fills their pockets, lines their piggy bank, or falls out of birthday cards. So when mom or dad leave a store with a cart full of food by merely swiping a piece of plastic, a child can assume that such things didn’t cost a dime. But a few smart habits can turn your shopping trips into learning moments for your child.

Show and Tell

Studies show that 48% of all purchases are transacted with plastic. About half of those are debit cards, and the other half are credit. When you’re among the 48%, use the point of sale as a teaching moment. Explain that the card you’re swiping tells your credit union to send the store some of your money. Perhaps something like this: “Today, we’re using some of the money mommy and daddy worked for, just like how you work for your allowance. We’re trading the store some of our money for this food.”

Spill the Bills

If your child is old enough to understand the concept, sit them down at the end of your billing cycle and show them your transaction history. “See, we’re now paying for the food we ate last week. But we saved our money to pay this bill, so it’s okay! We worked hard to make money so our family could buy what we needed. We knew how much money we had in the credit union and were careful not to spend more than we had.” Your objective here? Drive home the point that those cash-free purchases didn’t go unnoticed by your pocketbook.

Practice Makes Perfect

Finally, to turn your credit card concepts into financial understanding, hands-on exercises will help. As your child(ren) get older, allow them to be a part of your family budget. Allow them to create a grocery budget and make them stick to it. Once your child is 13, open a CU Varsity checking account with a debit card for them. As they turn 18, consider a secured Fort Worth Proud VISA credit card. A secured card has a low limit that is tied to the funds in their share account, allowing them to build their credit in a debt-free and responsible manner.

Source: bizkids.com blog