I was 19 when I received my first credit card and had no idea what I was doing. I’m not alone. In fact, a recent Bankrate survey found that over half of Americans do not have strong financial education, affecting their ability to develop positive money habits.
If you are a parent or guardian, teaching your child about credit cards may take the back seat to teach them how to drive and build a bed. It may be tempting for them to introduce in and out until your child is old enough to carry their own credit cards, but an inexperienced conflict with new financial liability may lead young adults to make rash mistakes and information-free decisions that follow them for years.
To get Their head start of financial educationwe have put together a series of lesson plans and activities that will be carried out from kindergarten to university. Many lesson plans share concepts and procedures as repetition is essential to financial mastery. Here are some ways to use your credit card and pay your payment method, calculate your interest and avoid unmanageable debts. It’s never too early (or too late) to start!
Things Every Child Should Know
Credit cards can be one of the first financial products children will encounter as adults, so it’s best to be used to them now.
Parents should introduce their children to the concept of money, such as how credit cards work, the concept of interest, and how it accumulates over time faster than it is.
– Kelley Weil, EVP of Bok Financial’s Consumer Banking Services
Weil continues. “It is important to discuss the long-term impact of paying, such as how it affects your ability to save goals. Over time, the importance of money and choices regarding finite resources should naturally be more crucial.”
No matter how old your child is, There are very few basic credit cards What they need to understand.
There are benefits to using your credit card responsibly
Credit cards have become a common payment method in addition to cash, as they are primarily considered more convenient and secure. Additionally, credit cards are frequently used to build credits.
The two general security benefits included in credit cards are fraud protection and zero responsibility. Children should be aware that most cards have tools to protect their identity by the issuer and that if someone steals and buys their identity, they are not usually responsible. This gives you peace of mind than paying in cash, especially for large purchases and online shopping.
However, another main reason why people use credit cards with cash is to easily create a credit score. In many cases, a credit score determines the loan, home, car, or even work you have access to, but there are not many ways to build it. Credit cards give children the opportunity to show how they handle debts without the weight of a large loan.
Credit is a loan
It’s easy to adopt a “invisible, heartless” mindset with a credit card. Unlike cash or debit cards, credit card limits are usually much higher than the cardholder has on hand, so most people are unfamiliar with such accessibility. And having the ability to get what you want now and pay it back every month can be very appealing, especially for new cardholders.
Children should learn that credit cards are a type of loans that they have to pay back. Paying a purchase fee that you cannot purchase using your card can quickly lead to bad spending habits and uncontrollable debts.
All cards are charged
All credit cards come with a number of fees, even those claiming “no charges.” Cards that boast fees often include annual fee cards, foreign transaction fees that waive the initial late payment fee, or cards that do not charge the card. That said, all cards, especially the best cards, will cost you a fee in the form of cash advances, returns payments, or penalty annual rates (APRs). Make sure your child reads fine prints on the cards and is aware of potential fees (and how to avoid them).
Debt is expensive
On the surface, it may seem like a big deal that a set of monthly payments for many purchases. After all, the purchase is paid, while providing space to breathe. However, children need to know that if they calculate the actual cost of a purchase along with the interest added by the card issuer, they could cost hundreds, if not thousands, of dollars, in addition to what they paid for the item. And having high debt can have a negative impact on their credit score, which can lead to fees, affect their ability to own a car or a home, and in some cases, their chances of getting a job.
Teaching your kids to pay their balances entirely each month allows them to avoid interest, save money, and ensure their credit scores remain high. It also helps you avoid falling into a debt cycle.
Good habits are simple and consistent
Financial finances can be complicated, but children need to understand that the key to making sure they stay in a good place is consistent. This includes paying on time, paying back your full balance each month, keeping your balance low and monitoring your credit score.
Some good habits can save your child’s time and money in the long run, so try to strengthen these habits as much as possible.
Credit card terms you need to know
There are many credit card requirements and it’s great to be aware of all of them. But here are some things you can start with:
Important Card Terminology
Lesson plan for ages 5-8
For young children, it is best to make the lesson simple and immersive. Balance knowledge and play and keep them engaged. Finances are confusing at any age, so be prepared to answer your questions. If you’re not sure, look into the answers together.
Lesson plan for ages 9-12
At this age, your child can begin to grasp more complex concepts such as interests and fees. Credit cards are an easy way to earn debts as your balances can increase and your money can be “invisible.” Unlike cash or debit cards, the amount you can use is not limited to the amount you currently have. You want to make sure that the “invisible” money they spend is directly linked to their ability to pay it back and how important it is to do it.
Lesson plan for ages 13-18
The teenager stage is marked as an era of independence. They often prepare for big milestones such as their first job or university. At this stage, I want to focus on teaching my teens how to plan a purchase, whether necessary or impulsive.
Lesson plans for ages 18 and above
As your child enters adulthood, you realize that credit cards are often part of a larger budget than they are allocated to a particular purchase or used as a go-to card for everyday expenses. Learning how to balance more unusual purchases, like a laptop, is important when using your credit card regularly to manage your debts.
Why teach your kids about financial literacy early?
The sooner we have conversations with our kids, the longer we have to understand the impact that money has on our lives and how it is best to use it. Below are other reasons why teaching your children about credit cards is important.
- It normalizes the money conversation: Conversing about financial literacy and credit cards allows you to open up an environment where you feel like you’ll come to you asking questions and asking for your financial help.
- They can learn from your past mistakes: If you mismanage your credit or finances in the past, telling your child what you’ve learned can help you avoid the same mistake. They may not have access to financial products at the moment, but they will be in the future, and understanding the pitfalls of credit and borrowing will help you determine whether it is the right choice for them.
- This may be the only way they learn: Not all states require students to take personal finance or economics courses to graduate from high school. More states have implemented this requirement in recent years, but children may not be able to access it. Teaching your home credit usage and the foundation of personal finances will help them move forward in adult life.
Conclusion
Teaching your kids about finances and credit cards can be a challenging task, but the best thing to do is get started. Make sure to research the topics you want to teach. Reflect on your own experiences and what you want to learn from them. If you are unable to get the lesson correctly or engage with it, try another day at any time. Most importantly, answer with simplicity and empathy, leaving room for questions.
“Teaching children about money can be fun and effective when incorporating it into everyday activities. Take your kids to a grocery store, for example, and turn your trip into an interactive game. We ask you to help decide which items to buy based on their price and your budget,” advises Weil.
Credit cards and money can be a confusing topic and they don’t understand everything in one night. However, if you keep involved with them and help them realize that budgets are part of everyday life, then they are likely to easily navigate their money and credit as adults.
