How to Instruct Your Children About Credit Cards

It is critical to talk to your children about money in order to help them develop better financial habits. Fortunately, finance has become a more popular topic in many families today—according to Bank of America data, 83 percent of parents are talking to their children about money, although just half of their parents had comparable conversations when they were growing up.

There are plenty of age-appropriate money subjects to discuss with your children at any age, and it’s never too late to start teaching your teenagers about credit. Talking to your children about the many sorts of credit cards and how to properly use them will help them develop credit and spend sensibly.

“It’s critical to teach your children about credit early on because building excellent credit takes time,” says Erin McCullen, Bank of America’s head of consumer deposit products. “Building credit from a young age through responsible behaviors can prepare the way for important purchases and life milestones because credit has an impact on future living arrangements, the capacity to buy a car, and even career chances.”

Credit Cards Appear Simple On the Surface:

you use your card to make purchases and then pay the debt at the end of the month. However, as many of us have discovered the hard way, utilizing credit is all too easy, and you can soon yourself in debt.

While many parents teach their older children about credit cards, explaining the ideas of interest or what it means to carry a balance right after handing them that piece of plastic may not sink in as well as you’d hoped. Giving your child real-world examples to demonstrate those lessons and teaching them how and when to use credit before they have a credit card might help them get a jump start on their financial journey.

Listen to this week’s episode of the wealthy & Regular podcast, and then read on for ideas on how to introduce credit and credit cards to younger children.


Recognize How Credit Works.

Much of what children learn about money comes from observing their parents spend it in everyday situations. Many parents provide lessons along the way, but youngsters learn most effectively by watching and then repeating what they see. You know what we’re talking about if you’ve ever had a child pick up swear words just by listening to adult talks.

Learning about credit, on the other hand, is a unique experience. While a teenager is likely to grasp that you must repay what you borrow, a smaller youngster who witnesses you using a credit card may believe that you simply swipe and obtain a product or service, almost as if it were free money. They don’t see you pay your bills or carry a balance that prevents you from spending your money on other things. As a result, it’s critical for younger children to grasp what credit is and how it works.


It Isn’t a Free Gift.

The basic premise of a credit card is that you are not using your own money, which can be difficult for children to comprehend.

For each transaction, you’re borrowing money from the credit card business and committing to repaying it in the form of a monthly payment.

Explain to your youngster that, while you don’t have to pay for what you bought right now, the firm is keeping track of all of your charges. You must repay them by a certain date, or you may be required to pay additional money in the form of interest, fees, and penalties.

Understand the Distinction Between a Credit and a Debit Card.

If you’ve ever gone for your debit card at a gas station and mistakenly grabbed your credit card instead, you know how similar the two cards can look and how they’re often issued by the same bank. It’s easy for adults to be perplexed, so it’s understandable that a toddler would not realize the two cards have distinct functions.

Show them both cards in your wallet and ask them to explain how to differentiate between them.

Make sure your youngster understands that, while a debit card gives you access to money in your account and functions similarly to cash, a credit card allows you to purchase items up to a certain monetary limit (your credit limit), which you cannot exceed.


Recognize the Importance of Interest.

When talking about credit cards with your child, you might also introduce the notion of interest. You may have previously covered compound interest and why it’s a positive thing when it comes to your assets, depending on your child’s age and the questions they’ve been asking.

Use this opportunity to discuss how interest works against you when you have credit card debt or other sorts of loans with your child.

Show your youngster the credit card internet dashboard and instruct them on how to calculate the annual percentage rate (APR) on your cards. Ask them to help you figure how much more money you’d have to pay in interest each month if you carried a balance if their math abilities are advanced enough.

Give Them Examples From the Actual World.

Having real-life examples and figures to look at can help students understand that credit is a valuable tool, but you don’t want to overuse it.

Allowing older children to play with the debt payoff calculator that many credit card websites now provide can help them understand how much items really cost when you use a credit card and don’t pay off the balance.

Always keep the message upbeat and age-appropriate. This lesson isn’t intended to fear or humiliate your child for their desires; rather, it’s intended to demonstrate that while using a credit card appears to be simple, there’s a lot more to it.

Credit is An Effective Tool.

It is a wonderful lesson to teach your child that credit is a valuable tool, but it should not be used to drive their lives. While students shouldn’t be frightened to use credit, instilling a healthy respect for its benefits and drawbacks can help them develop a positive relationship with it that will benefit them in the long run.

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