Teaching Kids about Credit
Teaching Kids about Credit
With all of the new credit card regulations recently passed into law, banks that issue the cards aren’t allowed to offer free gifts to college students in exchange for signing up for a credit card anymore. College kids have proven they aren’t quite savvy enough to be responsible with credit in many cases and banks assume their parents must have enough money to cover their debt if they can afford to send them to college. This will lead to new and improved marketing methods from the credit card industry to still attract the youthly future card holder.
One of the changes with the new rules is if you are under 21, you have to get a parent or guardian to co-sign for the credit card. That makes it even more important for parents to know the ins and outs of credit cards as well. Just because the parents are older doesnt always make them wiser. It is best for both sides, parents and student, to understand credit and how it can work to your benefit.
You can start teaching your kid about finances and credit at any age by explaining your own financial choices as you go. Have you ever had your child cruising through the store ask you for something? I am sure your answer was alot like mine, “not this time, Daddy doesnt have money for it”. The kids response……the classic……” but Dad, just swipe that card in the thingy or write a check”. Surely this has happened to everyone else, right? Kids learn by example, so keep that in mind when that situation happens to you. Spend a few minutes letting them know how that really works? . When they’re young, they have no concept where the money in the bank came from, or how credit cards work. You can make it a game, depending on their age, having them calculate how much more expensive items would be if you used your credit card with x amount of interest. It’s not a bad reminder for adults either!
While they’re In high school, you may want to help them get a secured card – but make sure they earn the money that is securing the card. They’ll be more careful with it that way and will really feel the effect of interest rates and fees on their hard-earned money. Walk them through the process of choosing a card with a lower interest rate, researching annual fees, and costs versus incentives. Teach them the difference between paying the minimum balance and paying off the balance each month and how to read the fine print to avoid late fees, over-the-limit charges and any other nuances.
Explain to them that how they use their credit card is not a secret. It can be looked up by any number of people and that record will have an effect on their lives for a long time into the future. Not just financially, as far as paying off debt, but in securing future credit for cars or homes, and even getting their first apartment or job.