Friday, November 15, 2013

What Can You Teach Your Kids About Credit Cards?

There is no such thing as a financial lesson that is taught too early. Pre-schoolers can be taught saving and even elementary kids can already learn about budgeting. When they get their allowance, you can give it on a weekly basis so that they will learn how to stretch that to last until Friday. That is a great way to teach them the fundamentals of budgeting. Bottom line is, you want to teach your child the right habits that will make them great managers of their own money as early as possible.

But what about credit card lessons? More specifically, you want to teach them about the devastating effects of credit card debt. This is probably a more difficult lesson to teach because the issues are a little bit more complex but you can start to give them the idea about the use of credit cards.

The best way to begin your lesson is through example. More than what you will say, children will get more out of what they will see you do than what you will tell them. So if you want to give them the best lesson about the proper use of credit cards, you may want to ensure that you are on your best behavior whenever they see you use your card.

The first question that you might be asking right now is when should you start the lesson? Well only a parent can really determine that but as soon as you think your child is able to understand your budget plan, they should be able to comprehend the basic issues about credit cards.

To start your lesson, ask you child what they think credit cards are. Ask them to give you an honest answer about these cards. Whatever their answer is, do not laugh at them - no matter how ridiculous it may be. Just listen patiently and tell them if they got any ideas right and if they got some of it wrong. Give them the following concepts about credit cards.

  • A credit card is not the extension of your wallet. Having it does not mean you have more cash.
  • When you use your credit card, you are not using your money, you are using the money of the creditor. That makes it a debt that you have to pay back.
  • Any balance on the credit card that you will not pay immediately at the end of the billing statement’s due date, will have an additional finance charge.
  • Explain that a finance charge is based on the balance of your card and the high interest rate of the card. This can get to be more complicated so save the computations for a more older child. You can use allegories when explaining to younger kids. For instance, when you borrow 4 apples from a friend and you were not able to return it the next day, you have to give back 5 apples instead of just 4.

Feel free to educate your child as soon as you can. The earlier they understand, the better they can apply and implement the financial habits in their lives. Also, it doesn’t even have to be a one time lesson. It can progress as you start to show them how you are properly using your card.

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