While it’s highly unlikely your kindergartner is thinking about taking out a loan, it’s never too early to begin teaching your kids about financing. With more than 235 million adult credit card holders in the U.S., there’s a good chance your child has seen you pay with plastic once or twice before. However, getting your kids to understand how credit is established can be a difficult topic to cover.
That’s why it’s important to educate your children about debt, credit, and how building your score can set the stage for a comfortable financial future.
Encouraging Healthy Financial Habits at Every Age
Earning and Learning in the Early Years
By the time your child enters elementary school, you may consider including them in simple household chores. Whether it’s sweeping the kitchen or making the bed, the ‘clink’ of those first few coins in the piggy bank can be an exciting sound. This is also the perfect opportunity to teach your kid about smart saving and spending only what you have earned.
If your child wants to purchase a $20 video game, but only has $15 in his piggy bank, explain that he can’t buy the game until he has saved enough to cover the full cost. Most kids have an “I want it now” mentality, and this concept can be frustrating for youngsters to understand. However, the sooner your child learns the value of a dollar, the more likely he will be to hold onto earned money and continue saving for a particular item. It will also make him think twice about the importance of the investment and whether he is willing to spend all of his money at one time.
Another way to teach your children about the importance of budgeting is to bring them along to the grocery store. As you pick up your items, let them know the price of the product. Encourage them to find the sticker for each item and read the price to you to get a better understanding of how much common grocery items cost. Use cash as often as possible to let your kids see a physical exchange between goods and money.
A great way to introduce the concept of credit to elementary-aged kids is to play games that emphasize smart spending with electronic transactions. Traditional games like Monopoly now feature an electronic banking edition that teaches children about modern economics and basic bookkeeping.
Delivering a firm understanding of the importance of saving money and spending wisely is the first step in teaching children about what leads to good and bad credit. Talking about money in a positive light helps to give children a better idea of why it’s important to save the money that they earn, and how spending it requires choices both now and in the future.
Talk Money with Your Teen
By the time your child becomes a teen, you will want to explain credit card limits and the importance of paying credit card debt in a timely manner. It can be easy for kids to think of credit cards as “free money,” especially if they only ever see your credit card and not the bill that follows. That’s why explaining interest rates and how higher debt can contribute to a lower credit score is important in establishing healthy spending and saving habits at an early age. Discuss how credit reports are often used to assess how responsible an individual is by landlords, insurance companies, and even potential employers.
As important as building a good credit history is, it’s also essential that you inform your teen of the consequences of less than perfect credit. Marks on your credit score can take up to 10 years to go away and can potentially make getting approved for an auto loan or a lease difficult.
Financing Made Easy at 199ride.com
At 199ride.com, we’re making sure that your financing experience is positive regardless of your credit score. Since 2013, our trusted sales teams have continued to work hard to help land you in a Nicer, Newer™, worry-free vehicle.