5 Ways to Teach Your Kids Good Credit Habits

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Personal finance is a skill set that typically isn’t emphasized in school. Many young people head off to college without much ability to balance a budget or to use credit responsibly. This puts the burden on parents to help train kids to be wise borrowers. You can take on this challenge and serve your kids well with a few basic techniques.

5 Jump in the Water

As your kid nears the end of high school, you want to prepare him for the realities of independent decisions and money management. Opening a joint card account with your junior or senior allows you to help him begin establishing a credit history. You can also teach him responsible usage first-hand. Give your child the card to buy one or two small items a month that he is responsible to pay for himself. Explain that he will need to have the money available and when the statement comes in, help him send in the payment.

4 Use Cash

Kids generally learn more by what they see than what they hear. You can talk until blue in the face about avoiding credit cards and their problems. However, if your kid watches you pull out the plastic for years, he will go with what he sees. The influx of online buying and the “plastic culture” in the United States make it easy to not carry cash. However, your kids will benefit greatly if they watch you avoid credit cards and make wise decisions about saving instead of putting that new TV on credit.

3 Cash or Loan

With kids age 9 and above, you can use a very practical technique to teach the reality of money. If he wants the hot new video game that costs $50, but he only has $25, give him options. One is to simply say you will have to save $25 more from your allowance or do extra chores. If you prefer to downplay credit, this works best. Alternatively, you could offer to loan him the $25, and lay out a repayment schedule that he must stick to or risk owing extra in interest and late payments. This allows him to make the choice and see natural consequences of borrowing.

2 Go Over a Bill

If you have a small credit card balance, review the statement with your son or daughter when it comes in. Show them the balance, monthly payment and due date. Explain that you should ideally borrow only what you can pay back right away. Otherwise, you incur monthly interest charges. Explain the credit rating significance of making payments by the due date.

1 Start with a Budget

Good credit habits begin with responsible money management. Typically, people that get into credit problems don’t manage cash well. As parents, you can start training kids at an early age to understand basics of a household budget. Without getting too involved in your private financial matters, help your kid lay out a basic budget to compare a typical monthly salary to expenses in common areas, like mortgage, utilities, car payments and groceries. You can give them a modest allowance and teach responsible savings. With good budgeting, credit usage may become a minor issue.
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