Important Credit Tips to Teach Our Kids
You can instill in your kids a good idea about credit and proactive spending, using their young age to cultivate good credit and open doors to numerous financial opportunities.
“You’re Never Too Young to Start Building Credit”
First, explain how credit cards work and how to use them correctly. It’s important to teach your kids that a credit card isn’t just a piece of plastic that can buy them things they want—explain that there are consequences for not making payments on time or in whole.
Please remind your child that spending money wisely is essential so they do not have to worry about payments or excessive fees.
Stop! Don’t let your kids make these financial mistakes
Explain to your children what a credit score is and why it is impacted by payment methods, the outstanding debt amount, creditworthiness, and the number of newly opened accounts.
Walk your son or daughter through your next credit card payment. Help them become familiar with different parts, such as price alerts.
You can add your child to your credit card as an authorized user
If you feel your child is ready, add them as an authorized user to one of your credit cards. This will help them build good credit through your existing credit history while also getting a feel for using a credit card for occasional purchases or emergencies.
Additionally, instead of giving them cash, you may provide them with preloaded financial cards on which the acquiring bank has already loaded those funds, which may help you become accustomed to budgeting with their card. The card has an application that enables you to make immediate transactions, track how it’s used, and model your young ones’ spending behaviors since they use it like a debit card.
Why should you lend your child a small amount of money?
Explain to your child it is best to manage a loan’s financial resources by giving them fifty dollars ($100 is an adequate amount, to begin with) and having them pay you back when the payment is due. Agree on a payment schedule that your child can keep up with. If the loans can be paid through monthly payments, encourage them to pay you an extra amount whenever the next payment is due.
Get rewarded for using credit responsibly!
This can be a bonus in their allowance, or if they earned rewards through a credit card, let them choose how to redeem it.