It’s so important for kids and teens to have an understanding of basic finances and credit when they’re old enough to start learning. Though it may take several years for them to understand fully and build up a good credit history, you can rest easy that you’ll be preparing your child for a secure future.
When to Get Started
Do you know when is the best time to begin teaching and giving guidance about credit and finances? The answer is a bit of a complex one since you know your child’s level of understanding and it doesn’t always depend on his or her age. A good rule of thumb is to explain the value of money and have them save allowance, birthday, and various other money they’re given.
Give them options on a regular basis, talk it through and provide model behavior of what you want your child to do. For instance, you can tell your child you’ll take him or her to the store to buy something small once he or she gets a few dollars, or you can set up a piggy bank to save up for something special at a much later date. This will impress upon them how important it is to make good decisions regarding money and that you need to be responsible about your spending. Children of around 7-8 years old should have a grasp of what this means and it will be beneficial to them in the long run.
Understanding Bad Credit
Young children typically can’t understand what credit is all about, but that doesn’t mean you shouldn’t bring it up to them at all. Kids in middle school are more likely to get what credit is and have discussions with their parents or guardians. There even are financial literacy courses taught at many schools now that are sure to give your child positive direction towards having good credit.
Bad credit is something that is harmful to many adults around the country. It can affect your ability to purchase a new vehicle, get a mortgage for a home, or take out a loan for anything else. You should talk to your pre-teen about your own experiences with racking up debt and what you’ve done or plan to do about it. Also, you can give them hands-on experience by loaning them money for something and then charge an interest rate each month so they understand how it will work in the “real world”.
Keep in mind that fixing your credit is something you can do yourself. The earlier your child learns about this the better it will be for him or her.
How Older Teens Can Be Better Prepared
You can have your teenager pick up a job once they’re old enough for it. This is especially a good idea since credit card issuers are required by law to look into income for applicants who are under 21 years old. Your child will benefit from having a reliable source of income for a while once they do need to begin paying off their credit card balance. After all, you don’t want him or her to expect you to pay the bill every month.
In general, it’s good practice to have your child do most of this work rather than doing it all for him or her. This is the best way possible to learn and you don’t want to develop a habit of handling all of your adult child’s finances and credit matters.
Need an easy way to show your kids how interest works? Check out this calculator!