Dealing with your child about credit cards is as crucial as teaching them to drive, instilling a good work ethic in them, and warning them about drugs and alcohol. Many children and teenagers feel excited about getting a credit card, but often for the wrong reasons. Fight their misconceptions early, and when the time comes, they will be more likely to be smart credit card users.
Start with the Basics of Money
Before you teach your child about credit cards, ensure they have an understanding of how money works, where it comes from, and how to spend it. Once they acquire a basic understanding of personal finance and economics in general, you can start discussing good money habits.
Ease into it with a Checking Account
Since most money is deposited and spent digitally nowadays, gaining personal experience managing a checking account helps your child understand the idea of spending money electronically. Once your child has a regular income, such as an allowance or a part-time job, opening a checking account with a debit card helps them get used to making non-cash purchases.
Introducing Credit Cards
Since credit cards and debit cards seem almost identical, your child may have a misconception that they are the same thing. Make sure your child understands the difference between these two payment methods. Specifically, explain how credit cards allow you to borrow money from the bank repeatedly as long as you keep making monthly payments toward the balance.
Introducing Credit Reports and Scores
Your reputation matters, even when it comes to finances. Using credit cards becomes part of your borrowing history, or credit report, which other companies use to review new applications.
Most companies use a credit score to measure this reputation, which is calculated based on an individual’s borrowing history. A credit score is a quick way for companies to decide who has a strong borrowing reputation. Previous late payments or high balances can affect your borrowing reputation and make it difficult to get approved for other things like new credit cards, loans, utility services, an apartment, a cell phone, or even a job sometimes.
It might take some lessons and hands-on experience for your child to fully understand how to use a credit card. Hopefully, this early guidance lays the groundwork for lifelong success in managing debit and credit cards.
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Resources:
Consumer Financial Protection Bureau. “What Should I Tell My Kids About Entering Personal Information like Bank or Credit Card Numbers Online?”
myFICO. “What Is a Credit Score?”
Source: https://www.thebalancemoney.com/teach-your-child-about-credit-cards-960193
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