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How to Talk to Your Kids About Credit

by Vanessa Lang

Financial topics can be one of the hardest subjects to teach your kids, especially when the topic is as complicated as credit. When our children are young, we can teach them about counting money and spending money, but how and when should we introduce credit? One thing is certain - it is never too early to talk to your children about good financial habits that will help them succeed in the future. Learning about and understanding credit is a process, and the following are a few ways you can try to make sure your child makes the right decisions for their credit in the future.

Instill Good Financial Habits Early
When your children are able to understand what it takes to be responsible with money, it will be easier for them to understand and maintain good credit. When they really want that expensive game or toy, donít cave in and buy it for them. Instead, make them work for extra money or encourage them to save their birthday money. When they are given a little money at a time, it will test their will power. They may fail and decide to buy something less expensive, but donít bail them out and buy it anyway. When they make these mistakes, they will learn more than they ever would from your words.

Practice What You Preach
One of the most important things you can do as a parent to ensure your children establish good financial habits is to practice these habits yourself. Your children look to you for guidance, and everything you do with your money could influence your childís future. Later in their lives, your children may come to you for financial advice, and you will want to make sure you give them the best advice possible.

If you donít think you have the best financial habits, itís a good time to change. Start trying to raise your credit score. Take a class to learn more about personal finance. No matter what route you take to improve your financial education, make sure your kids see that you are making the change. Explain what you learn and they may be able to learn from your mistakes.

Explain the Importance of Good Credit
One great way to make sure your children understand credit is by using an analogy. Try comparing a credit report to a school report card. Just like poor grades lead to a bad report card, poor financial habits (like making late payments, holding a balance on a credit card, or taking on a lot of debt) lead to a bad credit report. As your child grows and learns new subjects in school like economics or more advanced math, use credit when practicing these new skills.

Bring up the topic of credit whenever possible - at the dinner table, in the car on the way to school, while they are doing their homework. Let them know that a bad credit score could mean they canít get a loan for a house and they might not be able to get approval to live in an apartment. Many employers check credit reports as well, so a bad credit score could also prevent them from getting a job.

When you feel that your children are financially responsible, itís time to put it to the test. Get them a line of credit or a savings account. If they have a job, encourage them to save at least half of their paycheck for something special like a car or a trip for spring break.

If you allow them to have a credit card, tell them that it doesnít mean they have free money, and also tell them every purchase they make with the card should be paid off immediately. Remind them that they are currently building their credit and that they should do everything possible to avoid a bad credit score.

About the Author
Vanessa Lang writes guest posts on the topics of business, marketing, credit cards, and personal finance. Additionally, she works for a website that focuses on educating readers about
payday loans.

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