Teach Kids Good Credit Card Habits Early On
Shielding the kids from the realities of consumer finance can set them up for failure later on, so begin early to teach them the risks and rewards of credit card use.
One good method is to get a credit card that is used only for their purchases – and whose payments are made from their budget / allowance.
Begin by doing the research together – look at the different credit card offers, consider the benefits of each, such as interest rate, reward offered, and any annual fees.
Since you will be monitoring this use and hopefully keeping purchases to a minimum, a card with an annual fee in exchange for rewards would be a poor choice. However, show your child the math before rejecting that card.
Compare the cards offered to a person with a high credit score vs. a person with a low credit score, so that the benefit of maintaining high credit stands out in black and white.
Next, have your child assist you in filling out the application. Let him or her learn what information is required.
As you wait for your new card to arrive, work with your son or daughter to set up a budget for its use. Show him that if the budget / allowance for the month is $20 and he spends only $20, he can pay the bill in full when it arrives and pay no interest.
However, if she charges $40 instead, it will take 2 months to pay the principle and she’ll still owe interest – which will have to come out of her budget for the 3rd month.
At the same time, you can and should set up a savings account, and encourage your child to put any unused money for the month into that account. That will give you the opportunity to teach how interest can be a benefit when it becomes a credit to your account rather than a drain on your funds.
Since consumers are right now drowning in debt, and since interest and penalties are making their debts double and triple, teaching kids to plan ahead and wait to make a major purchase could be one of the most beneficial lessons you teach as a parent.
So consider that your son wants a new “toy” that costs $100. Show him how putting that $20 into a savings account and making the purchase after 5 months will leave him with money left over, while making that $100 purchase now and paying $20 per month will leave him still owing interest after the original $100 has been paid.
