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Teaching Your Kids About Credit and Money

10/24/2008

There are so many important jobs when you are a parent! So many important things that you want your child to know before they grow up and leave your home. How to manage their money and their credit is certainly one of them, but it’s an area that a lot of parents never really go into detail about with their child.

At what age do you start teaching them about credit? When do you talk to them about money? The answer, at least for me, is from the time they are born! Even children as young as two or three can understand basic money concepts.

Here are some quick and simple ways to teach young kids about money and credit:

1) Go shopping with them, and talk to them the entire time. If your child is old enough to count, why not tell them you need a can of tomatoes, and have them price compare? Which can is cheaper? Do you like one brand better than another? What about the packaging?

This can prompt an excellent discussion on frugality – Is the more expensive brand always better?

2) Let your child pay – If you are using cash, hand it to them and supervise them while they count it out. If the store isn’t extremely busy, most cashiers do not mind. If you are using a debit, or credit card, hand it to them, and tell them what it is.

Here sweetie, this is a debit card. When you pay with this card it means that it comes out of my checking account, and it uses the money that I earned at my job.

Or, if it’s a credit card:

This is a credit card. It’s a small loan. When you use it you are borrowing money from the bank, and if you don’t pay the bank off within a month they charge you more!”

I tell my toddler which cards I am using all the time. And yes, I get some strange looks when I hold the card up and say “This is a Debit Card! It’s better than a credit card because I’m using my own money!“. But I will keep saying it until my daughter understands. When she’s old enough to say,

Yes Mom, I know what a debit card is” I *might* stop telling her.

3) Let your child see you pay the bills –
Now obviously, if you’re stressed and pulling your hair out, it might not be the best time to set an example – we all have those months! But if you can find a time when you are calm, go ahead and pay the bills in front of your child. I’m not saying that you have to divulge your entire financial picture to your baby! Just let them see paying bills as a normal part of life.

4) If you carry a balance on your credit cards, show your child how much interest you are being charged, and show them where it is on the statement.

“Look, see, I only paid part of my credit card bill last month, so this month the bank charged me $50 in interest!”

Or:

“You know, if I had put that money into a savings account instead, then the bank would have paid me interest. A savings account is like loaning the bank your money for a little bit, and they pay you money each month because they borrowed it.”

5) Open an investment account for your child, and let them help you run it – Very young children can still be taught good investment principles! We bought our daughter a small amount of Disney stock in her account. We did this not because we believed it was the best investment, but because it was an investment in her. She may not understand what an ETF is yet, but she will know all about Disney. We will help her to understand that those few shares give her a tiny bit of ownership in the company, and it will be a launching pad for more discussions when she’s older.

6) Don’t be afraid to talk to your kids about investing, credit and money – They are not going to learn about it in school. If they don’t learn about these things with you, they are very likely to get their education from the school of hard knocks.

I think a lot of parents avoid talking about these topics because they are afraid they will give their child bad information. You really shouldn’t worry about this. If you tell them something that is wrong, just go back and correct it later. When it comes right down to it, it’s probably better for them to have spotty financial knowledge than none at all. They will fill in the gaps with their own experience as they grow.

7) Tell them where their money should go, do not give them an option –
From a young age, as young as you feel you can manage it, split any money your child gets into categories: Spend, Save, Invest, Charity. Go back to that formula every single time your child gets any amount of money.

I mean really, consistency is key. Most children never grasp an idea the first time. Especially if it’s not an idea they like! They do have to be gently told, over and over, and over and over. If you stick to your guns on this one you are giving them a lifelong habit of success.

8) Talk to your child about what a credit report is – You don’t have to go into the whole concept if they’re young. A simple:

“It’s like a report card. Every dollar I spend on credit is recorded there, and every time I pay my bill it’s recorded there too! If I do a bad job, I get a low score, and then no one will want to let me borrow money any more – that’s like being in detention…for a long time…It takes a long time to get an “A” again if I mess it up”

However you choose to talk to your child about their finances and their credit, the important thing is that you do talk to them.

There are tons of simple ways to teach money and credit quickly, and effectively – I’m sure you can think of a ton of them! Just remember that you probably don’t have to push the good advice at them, just make it a normal part of their lives, and they will thank you for it when they are older.

How do you teach your kids about money and credit? Please leave us a comment below!

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