Teaching Your Kids About Credit Cards: The Basics Part One
You want to teach your kids everything they need to know to get started on their own, right? Of course, you can’t literally teach them everything. There are those things that can only be learned through the school of hard knocks. However, you can prepare you kids for the real world by giving them great financial tips, including lessons in credit and credit card usage.
Credit Scores
Sadly, many young adults venture into the world of reality with nary a clue as to what a credit score means, let alone what one is. Parents can give valuable financial lessons by teaching these young ones all about credit scores. Sit them down and explain all about the three credit bureaus, how scores work and how they can be somewhat different from agency to agency, depending on the reporting practices of the creditors themselves. Explain to them what those numbers mean, what affects those numbers, the importance of maintaining a good score and what affects it could have in the future as far as their ability to obtain credit, loans, get a home or even a job.
Credit Cards
Credit cards have their benefits and downfalls. In this day and age, though, it is definitely a valuable tool to have, even for the young adult. Parents can prepare their kids by teaching them how to use credit cards responsibly. In part 2 of this series, we will discuss ways to start teaching credit card use early on. For now, we will address the basics that your kids need to know before they ever think of even obtaining a credit card.
First, be sure to explain to them that some cards do have annual fees, and that the balance due is not simply their purchase amounts, but also includes fees, finance charges and interest rates. Explaining interest rates is a smart idea as well. Teach them about responsible use of a card and paying the balance, including the pros and cons of minimum balances. Some of the other things to tell them? Make sure they can afford to pay back what they charge plus fees and interest. caution them against impulse purchases and cash advances, as well as purchasing a few dollar item on credit.
Teaching your kids to be disciplined with a credit card can set them up for a reasonably financially responsible future, so long as they adhere to these lessons. Adding in lessons about budgeting, investing, and saving wouldn’t hurt either.
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