Part of being a responsible parent is teaching your kids the skills that they will need to succeed in this complicated world.
One of those very important skills is how to manage money properly so that their lives do not revolve around issues of money, like most of us have experienced one way or another.
More specifically, we need to teach our kids how they can properly use credit cards to build their futures without accumulating debt.
To clarify, the goal is NOT to teach your kids about the best credit cards such as low-interest credit cards or 0 percent credit cards but to teach them HOW to use credit cards and teaching financial literacy.
Some may argue that kids shouldn’t be learning about credit cards, that they have plenty of time before they start using credit cards.
Sure I understand the argument, but teaching kids the proper way to use credit cards at a young age helps instill good credit behaviors, and we know that as an adult, it’s much easier to learn good habits from the beginning rather than unlearn the bad habits acquired over time.
To help you get started, here are 4 simple tips to help you teach your kids how to use credit cards responsibly, and how I’m planning to teach my own kids.
Encourage responsible credit card use
Credit cards are an excellent way to build your personal credit and even wealth, unfortunately, they’re also the quickest way to get into debt and destroy your wealth.
Right after high school, I joined the military and all of a sudden the new and shiny credit cards started coming in the mail and all I could think of was all the things I was going to buy.
Sadly I had to learn how to use credit cards the hard way, making bad decisions after another one and learning the tough lessons the hard way.
Luckily I learned and over time improved my skills and turned things around.
Having 3 kids of my own I want to teach my kids how they can use credit cards the right way, so they fully understand the benefits and pitfalls of using credit cards and hopefully avoid some of my mistakes.
As a parent, my goal is to teach my kids when to use a credit card, the importance of paying the balance as soon as possible to avoid interest fees, and how they can monitor and grow their credit over time.
2-Way conversation
When you sit down to talk to your kids about credit cards, make sure it’s an engaging 2-way conversation, don’t shove your thinking down their throats, teach them!
The goal is to teach your child the value of money, financial responsibility and money management.
The goal is to educate them so they start learning, give them examples of what could happen if they don’t use credit cards responsibly so they can understand how to make those decisions as they get older.
One of the many topics you should cover with your kids is how interest charges and other fees work, and that paying such fees is like giving money away for nothing.
According to a 2019 study by CreditCards.com, “The amount of average credit card debt has been steadily increasing, after the dipping in the wake of the Great Recession. Balances have been creeping up since then at a national level.” See the Average Credit Card Debt by State.
Consider starting with a limited balance credit card.
The quickest and easiest way to get started is to have your kids save money until they have a certain amount, like $100.
Take them to your bank and get a pre-paid card for the $100 dollars.
Even though your teen paid for the card with their own money, it’s a good idea to tell them to make every effort to stretch out their use of the card.
The benefit of this method is that your child saved the money upfront before actually charging items.
This will help them understand that the credit card balance is tangibly their own hard-earned money, and hopefully will teach them not to use more than what they truly need.
Note: If you’re looking for a really good option, check out the GreenLight debit card which is a program that offers credit cards for minors and is super easy to use. Here’s a GREAT GreenLight review from PTMoney that breaks down some of the GreenLight card FAQ.
Provide a credit card to replace the weekly allowance.
If you give your kids an allowance for doing chores and other things around the house, consider converting their allowance to a monthly credit card balance.
This method will teach them about credit card management.
Consider this example:
You normally pay your teen $30 cash weekly allowance. When they turn 16, state you’ll now provide a credit card rather than the $30 cash weekly.
Explain that they can charge up to $120 per month (4 weeks times $30 equals $120) as you’ll pay up to that amount monthly to cover their credit card purchases.
Stress that if they charge over $120, they must come up with the difference to pay off any balance over the $120 when the statement arrives.
If they charge over $120 for the month and are unable to come up with the difference, they must surrender the credit card until they pay you the difference owed (even though you’ll go ahead and pay it off to avoid monthly fees).
Using this method to teach your kids how to handle credit cards is a helpful lesson in managing their money with limited funds.
Your kids learn the importance of limiting their spending and how to live within their means.
Praise your kids for their effort when they do well.
If your kids manage their card poorly, don’t bash them! Instead, sit down with them and go over every single transaction on their credit card statement and have a conversation with them.
There’s a pretty good chance they probably mismanaged their credit card because of a purchase they truly didn’t need, so it is your job to teach them how to prioritize and ask the right questions before they make a purchase.
If your kids did well, praise them, you’ll build their confidence for the future when you teach them how to handle credit cards wisely.
Teaching your kids how to handle credit cards is challenging, think back at all the times you struggled, so approach it as a teaching exercise rather than a punishment for not doing well.
The good news is that if you start early with your kids about how to earn, save and spend money, they’ll easily progress to understanding the above concepts with your help and guidance.
Do you think it is a good idea to teach your kids about credit cards at a young age? How would you teach them? Please share your comments below.
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