This is a sponsored post from CreditRepair.com. All opinions are 100% our own.
Did you know that most parents aren’t teaching their kids about credit cards?
Most parents know the importance of teaching their children important money lessons, such as saving money and budgeting but fail to teach their children about credit.
Often times, parents want to shield their children from credit cards because they want to prevent them from making money mistakes that could potentially destroy their financial lives.
So instead of teaching their children about credit scores and credit cards, they simply avoid the subject altogether.
However, it is important to start teaching your kids about credit cards while your children are young. Children should be aware of how these concepts will affect the rest of their lives, especially when it comes time to apply for a mortgage, apply for a loan, or purchase their first car.
It is never too early to start teaching your kids about credit cards. In their early elementary years, you can begin with basic money concepts such as an allowance for doing chores or budgeting money they receive as a gift.
As they reach middle school and beyond, you can start introducing the concept of interest, borrowing money, and how credit influences their financial lives.
Lessons to Teach Your Kids About Credit Cards
Teaching your kids about credit cards is just as important as teaching them how, how to have good hygiene, or how to work hard.
With these important lessons, you will establish better money habits, teach your children to be responsible credit card users, and even save them making dangerous mistakes that will impact their future.
Lesson 1: It’s Not “Free Money”
Explain to your children how credit cards work. You can explain that credit cards are not free money, and the money doesn’t actually belong to them.
Tell them that the bank lends them someone else’s money and will allow them to keep borrowing that money as long as it is paid back.
It is also important to emphasize that the longer it takes them to pay the money back, the more it will cost in the long run. Let them know that the bank will charge them interest fees if the money borrowed is not paid back in full.
This is a great time to introduce what interest fees are, how they are determined, and why they are important.
You should also talk about credit card rewards such as cashback cards or travel cards.
Lesson 2: There is a Limit to How Much You Can Spend
Tell your children that all credit cards come with a credit limit – and that credit limit determines how much money they get to spend. Explain that once they reach that limit, the bank will no longer allow them to make purchases until they pay off some of the balance.
They also need to know that while they may be tempted to use their entire balance, this can negatively affect their credit score.
Teach them that keeping their credit utilization low (around 30% or less) helps them pay off their debt sooner and helps build a better credit history.
Lesson 3: Only Use Your Credit Card If You Can Afford to Pay it Back
Teach your children that it is completely possible to stay out of credit card debt by only charging what they can afford to pay back.
Be sure to explain to them what a credit card should and shouldn’t be used for. Credit cards should not be used for medical emergencies or everyday expenses like food and gas.
Make sure your children are in the habit of tracking their income and expenses so that they know how much they can afford to pay when the bill comes.
You could also take it one step further and let them know that you won’t be there to help make payments or pay late fees.
Your children will more likely make smart financial decisions when they know mom and dad aren’t there to bail them out.
Lesson 4: Stick to Your Budget & Don’t Let Others Influence Your Spending
A credit card can be a shiny object to a child – and once they are bombarded with television ads and peer pressure from friends, they can be tempted to start spending more money than they should.
Teach your children how to think critically about how their friends influence their spending, be aware of constant advertising, and how to avoid impulse purchases.
Be sure they know that no matter what they buy or who uses their credit card, they will be the ones footing the bill. You should teach them how to organize their monthly bills so they are never surprised by their balance.
Teaching your children how to stick to a budget can help them avoid impulse spending and letting their friends influence their spending habits. You can teach them how to manage their with one of our favorite budget printables (including one from us!)
Lesson 5: You Are Being Graded with a Credit Score
Kids need to know what a credit score is and why they should care about it. Explain to them that the decisions they make with their credit card directly impact their credit score.
You can explain that credit scores are a lot like report cards, and they are being graded and those grades follow them for life. Tell them that the higher their credit score is, the better “grade” they get, so they need to be using their credit cards responsibly.
Try explaining the benefits of a higher credit score, such as higher credit limits, lower interest rates, and higher chances of approval on personal or business loans.
When they get in trouble with their credit score they want to be aware of their credit so if there are errors on their credit, or other items they don’t recognize, there are services like CR to help them dispute those things and make sure their credit is a good representation of their financial history.
For this, there are companies like CreditRepair.com that can help fix your credit.
Final Thoughts on Teaching Kids About Credit Cards
Getting a credit card can be an exciting time in a child’s life, but they should learn how to use them responsibly.
By teaching your kids about credit cards at a young age, you set them up to be financially responsible adults and save them from making costly mistakes such as overspending or missing payments.
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