Of all the lessons you teach your children as you’re raising them within your home, how to manage money may be the lesson that can have the most impact on their ability to be self-sufficient once they leave the comfort of your nest.
However, because money is often such a taboo topic, even within familial ties, many parents find it hard to know how to talk about money with their kids, especially when it comes to complicated and confusing topics like credit. So to help you prepare your children for the world outside, here are three tips for teaching your kids about credit.
Explaining What Credit Is
The concept of credit can be hard to explain to your kids, especially if they don’t quite understand basic financial principles yet. For this reason, Real Simple suggests first explaining what credit is by talking about earning money, borrowing money, and repaying money.
If these ideas are understood, the idea of credit shouldn’t be too hard to convey. To help teach these principles, you may even want to go over your own credit report with your child to show them examples of how to use credit and what goes into a credit score.
Understanding Buying Decisions
Knowing what you can afford is a great financial lesson to teach children. However, this lesson often becomes more convoluted when credit is involved. Because you don’t have to have the physical money on your person to use a credit card, buying decisions can often be easily influenced when using credit.
That’s why, according to LaToya Irby, a contributor to TheBalance.com, it’s important to teach your children how to make good purchasing decisions when using credit. Show them that just because something may seem like a necessity or a good deal at the time doesn’t mean it’s worth risking your credit over.
Talking About Debt
When discussing credit, you also have to discuss debt. Your child should understand that if they can’t adequately manage the credit they’re given, they could end up with crippling debt. But while debt is something to be aware of, Tim Chen, a contributor to U.S. News and World Report, reminds us that not all debt is bad.
It could also be beneficial for your child to learn that some debt is necessary and important for building your credit score, like acquiring a home loan, car loan, or student loan. Too much fear of debt can be just as harmful to your child’s financial future as not enough fear of debt, so make sure you do your best to give them a balanced education.
If you’ve been considering talking to your child about credit, use the tips mentioned above to ensure they understand what credit it, how to use it, and how to manage it wisely.