When it comes to credit cards, teaching your kids how to use them properly might be the last thing on your mind. However, as they get into their teenage years and mature, credit cards will be on the radar and you should ensure they understand the world of credit.
Think back to what you did when you first had a credit card, did you know how it worked and what to look out for in the big bad world of credit debt?
Don’t let your kids learn about credit cards by trial and error, educate them and ensure they know all the ins and outs of credit cards before they gain access to the world of credit.
Now it’s time to discuss credit cards with your kids, here are some things you might want to cover.
We all want our kids to be responsible when it comes to credit cards and setting a good example and explaining how they work is key. Here are some things you might want to discuss when the topic comes up about applying for a credit card for your child.
Credit cards are not a wonderous pile of money – they are in fact money that needs to be paid back, with interest. Sit down and explain how the world of credit cards work and explain how the credit card company lends money for you today and expects you to pay it back by set times each month otherwise hefty interest charges will be added. Be clear about the need to be aware of credit card due dates for payments and monthly statements.
Interest rates for credit cards can wind up costing you thousands of extra dollars over the life of a credit card. So if you have the tools available, show your children how a small amount of credit debt can wind up costing them much more if interest is added. Over the course or a couple of years, we can often be charged hundreds or thousands of dollars of interest and your kids should understand that leaving the credit debt for another day could be a bad move in the long run.
Having a credit card in your wallet doesn’t give you free reign to spend up big time. Chat about credit limits, paying off balances each month and the goal of keeping a zero balance. Moderation is key with a credit card and spending limits should be applied as you would with your day to day spending.
When you’re young it’s hard to think about saving for your first car or even your first home and in the early days, your habits with credit can have a long-term effect on your future. Using credit cards responsibly will help to build a high credit score and assist in the loan application process so avoiding maxed out credit cards and loans is key.
The personal finance lessons you teach may go in one ear and out the other. For older kids, practice is the best lesson. Get them accustomed to using credit while they’re still under your roof. You can monitor their credit use firsthand and help modify bad habits.
Consider as a starting point a prepaid debt card which will allow your child to make the purchases they want only using the money they have in the bank. Add a specific amount to the card and when this goes, then your child will need to find their own cash to top it up.