Credit 101: Introducing Financial Responsibility to Your ChildDec 17, 2020
Taking the first steps into adulthood is a challenging stage for everyone. Even adults find it tricky to live a responsible life, that’s why it’s important to help your children build positive, financial habits early on.
You wouldn’t want to let your kids think that money grows on trees, especially since it will only set them back from leading life to the fullest once they step into the real world. Every parent wants what’s best for their children, so it helps to educate them on personal finances so they can achieve their dreams without running into money pits in the future.
Tip #1: Explain the Role of a Good Credit Score
The first step to teaching your children about building credit is to give them an idea of what it is. You don’t need to go deep with technical terms since they won’t be at the right age to fully grasp everything, but explaining what good credit habits can do is a good starting point.
Explaining the basics of saving and spending, for example, can help define the concept of credit. You can also brush on common terms such as unsecured and secured loans just so they have an idea of what to expect in the future.
Tip #2: Define the Difference Between a Debit and Credit Card
Your children will likely see adults, including you, swipe a card when purchasing products. It’s easy to mistake cards as a form of quick cash, that’s why it’s critical to let your kids know the difference between a debit card and a credit card.
Helping them learn the ropes should improve their understanding of financial responsibility, especially when it comes to borrowing money using credit cards. All these little lessons can pave the way for a more secure future.
Tip #3: Open a Secured Credit Card
Another way to improve your children’s financial literacy is to teach them how to save. You can incentivize them by giving money as a reward for good behavior – whether it’s about their performance in school, completing household chores, and more.
Helping them save at a young age creates the opportunity to open a secured credit card, which can help them experience the ropes of handling money. They can feel the consequences of poor financial decisions since it will impact their account, but when done right, they can reap the benefits two-fold.
The Bottom Line: Teaching Children About the Importance of Building a Good Credit
Taking the time to educate them on their credit can influence how they will fare in the real world, allowing them to establish a healthy relationship with money. That’s a life skill that can benefit anyone for years to come.
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