Talking To Your Children About Money And Credit
One of the most important things we can do as parents is to teach our children about money and credit. This isn’t something that’s taught in school – which means that the responsibility lies 100% with us. I wanted to discuss a few basic plans with you all today, and get your opinion on them. What do you think is the best way to talk to your child about money, and credit?
Here’s my take:
Teach your child to save first:
This is especially easy with younger children who have no access to credit. Don’t even make borrowing money an option. If there is something that your child wants, but cannot afford, don’t just it for them. Sit them down and talk about the cost of the item.
Make a simple chart or budgeting worksheet.
If your child has an allowance, then help them put together a budget. Help them figure out how long it will take them to save for the item. I would recommend getting them their own calendar, and marking their budget on it. You can put stickers on the calendar, or the budgeting worksheet to make things more fun. Give your child a sticker each time they save like they planned to, etc.
If your child believes that it will take them too long to save for the item, you can always encourage them to find more ways to earn money (which is an excellent real-world lesson!). Offer them more chores, or see what type of an odd job they can do to earn extra money. Keep stickering their calendar and charts so that they stay excited about their goal.
I know this sounds like a plan for younger children, but it works just as well with teenagers – as long as you don’t talk down to them. The message is basically the same: No, I’m not going to give you what you want, or lend you money. Earn it, and Save for it. Obviously you will say that as gently as possible – but the meaning shouldn’t change.
I truly do believe that it’s best to start with that lesson before you ever introduce credit, or allow your child to borrow money.
Make sure your child knows there is a direct connection between time and money:
This is one reason a calendar and a budget are so important. Help your child understand exactly how many hours of his / her life they are going to have to work to have the item they want.
You know, as an adult I sometimes things that I do not need, and regret it later. One of the best ways that I found to stop that behavior was to think (even for a second) of how many hours I had to work in order to purchase that item. Nearly every single time I ask myself that question, I end up putting the item back.
It’s especially important when you are talking about credit and borrowing money. Not only do you have to work hours of your life to afford the item, but unless you pay your full balance each month, you have to work additional hours to pay the interest on the loan.
So that calendar, and budgeting worksheet go a long way towards teaching your child to question his/ her purchases and judge them by the mount of time it will take to earn them. Especially if you are consistent about using them.
Talking to your child about credit:
Having basic “Save before you ” mentality will work wonders when you start introducing credit to your child. When my daughter is olden enough, I am going to teach her about credit card rewards first.
I will explain to her what the rewards of good credit are (That it costs you less to borrow money because people know that you will pay them back) and also that it’s possible to get some nice financial benefits and rewards if you use credit correctly. She will never be allowed to borrow money that she does not already have in savings. If she uses credit it will be because she has the money at home already, and wants to take advantage of the rewards from using credit.
I believe this will set her up with a better mentality about credit cards. Credit cards are financial tools. In some cases they are excellent financial tools. Being able to get rewards because you use your credit cards is a nice benefit of having good credit. In some cases it’s like getting a constant discount of a few percent – whether that’s in rebates, airline miles or cash back.
Obviously, my daughter will be much older before we have these types of conversations. If you child is the right age for this type of discussion, make sure you mark a calendar with their due dates as well as your own. Take the time to sit down with them and make sure they are budgeting and making payments on time. Adding your child as an authorized user and sharing a basic rewards credit card account might be an excellent way to teach your child how the rewards of good credit work. It’s also an excellent way for you to supervise their use of credit, and to oversee their payments.
I don’t believe I even want to teach my daughter that she can borrow money that she does not have. That’s my whole goal with talking to her about good credit and rewards. I Want her to know right from the start that you don’t borrow money because you don’t have any money.
If you are broke and have no money you work to earn more. If you have money and borrowing gives you a clear financial benefit, then it’s an acceptable situation.
What do you think about this plan? Do you have any suggestions? Leave me a comment below!
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