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Learning how to use credit cards properly contributes to your overall financial wellness. If you’re a parent or thinking of becoming one, teaching your children about credit card usage will help ensure that they are better equipped to manage their relationship with credit.
Some start their credit history off rocky because some parents put accounts in their child’s name. If you grew up without having healthy spending modeled, a few missteps could land you in a tight spot, as you learn through experience.
“According to a recent survey, about 65% of working Americans say they frequently live paycheck to paycheck,” per Barron’s.
Teaching your children about credit card usage can be done well before adulthood. Here are a few tips to simplify the process.
1. Start early with basic concepts.
Starting early helps to make talking about money natural in your relationship with your children and your household. Start with basic concepts, including the creation of financial goals, budgeting, tracking spending and savings, and managing their allowance.
You can then start to build on those basics by explaining the purpose of a credit card. Although society has used some form of credit since the 18th century, Experian shared that the process we know today has existed for over 70 years. That said, starting with the basic concepts can help your children find their footing when handling credit.
2. Lead by example.
Learning by observing is a powerful way for financial habits to take root. When you show your children that you take your own advice, it’s easier to teach them those same money practices.
Keep your balance low. Set up account alerts. Pay your credit card on time. Pay more than the minimum amount due every month and, where possible, the billed balance. If you make a financial mistake, explain the consequences, from interest charges to low credit limits.
3. Teach responsible spending.
Being able to recognize the difference between needs and wants is a crucial discussion to have with your kids, including intentional buying and thoroughly understanding the value of money. Walk them through how to set priorities that will aid them in respecting a budget for their real-life purchases. Through practice, they’ll become more self-confident and work to establish smart spending patterns.
4. Monitor and guide teenagers.
Keep the conversation going as your children get older. Encourage them to share their spending habits and, where possible, offer guidance. Have tough conversations about how peer pressure can impact spending habits and the link between emotions and spending. Share the benefits of responsible credit usage, which leads to access to better rental properties or mortgages down the road, for example.
Having age-appropriate conversations about money at home empowers parents to equip their children with the skills to manage money well. When you teach children about credit card usage, you invest in their ability to make wise financial decisions, and they have a better chance of navigating money matters in life. No matter what age, teaching financial literacy helps to improve their lives and the lives of generations to come.