Teaching your Kids about Credit

Young children simply do not grasp the concept of credit cards, but they are paying attention to their parents and watching how mom and dad are using a cute little plastic card in place of cash. When a child does not understand the concepts that go hand in hand with paying with plastic, they may get the wrong idea: A little plastic card spits out money like magic, giving the adults money any time they want it without any repercussions. It is absolutely vital that you nip these beliefs in the bud as quickly as you can, because as a parent, YOU are responsible for teaching your children about money, financial planning, and credit.

The concept that money coming out of the ATM actually comes from a bank account that has to be earned and fed into by working is one that many young children simply cannot understand without assistance. Likewise, it will be just as hard for them to understand that when you swipe your credit card at the grocer or another store, that you will eventually be getting a bill demanding that the money be paid back through hard work at your job.

Life these days has such an overwhelming electronic aspect to it, that children are having difficulty grasping the complexities behind how ATM machines, internet banking, credit cards and other financial concepts actually work, even when you explain them in the simplest possible terms. However, there are methods out there for teaching your children how to understand credit cards and what they have to offer. If your children learn to understand these concepts, and if they learn how to be monetarily responsible at a young age, then your children will grow up to be more fiscally responsible than if you do not teach them young.

- Make the learning process fun.

Teach your children about numbers and math and finances by showing them how to comparison shop and showing them how the grocery shopping process works. Explain as you go what is happening, including how you are paying for the groceries, and how much they cost. The more you make it fun by turning grocery shopping into an enjoyable learning experience, the more your child will want to learn about the process.

- Give your children an allowance.

If you give your child his or her own money for spending or saving, your child will begin to feel a real sense of responsibility for that money. This is true even if the allowance is small. Giving your child ideas on how he or she can spend or save that money will help inspire ideas for money management. Teach your child how to spend half and save half, and teach him or her benefits of saving money and how it can add up for bigger, better purchases in the future.

- Squelch the “I want it now!” mentality.

Teach your child to save, rather than giving in to his or her “I want it now!” demands, and your child will grow up with a much better sense of the benefits of saving rather than getting everything he or she wants right away (such as with credit cards).

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