In honor of Teach Your Children to Save Day, we prepared a guide for teaching your children to use credit wisely so that you can prepare them for adult life. Being financially literate is extremely important, and good money habits should be taught early in life. Ingraining the following financial topics to your child will prevent him or her from being in high-interest debt and taking out a credit consolidation loan in the future. Read on to learn more about financial education for your children.
How to Teach Your Children to Use Credit Wisely
- Set your curriculum. Before you start teaching your kids to use credit wisely, you need to have a plan. Your curriculum should include identifying wants vs. needs, saving and planning, and how to budget. It is vital that children learn the difference between want and needs early on. Children should be taught to identify whether what they are looking to buy is a need or a want, and if the purchase can be postponed for when the money is available at a later date. They should also learn how to keep track of their spending. If they have a job, they can use a savings account to deposit a portion of their money or check. Budgeting is also an important component of the curriculum. You need to be firm with your kids about how they cannot buy everything when they want it. They need to save money to make purchases. Help them out by using a budgeting worksheet so they can learn about incomes and expenses.
- Teach credit and debit. You should stress the importance of credit cards to your children. Emphasize that they are not magic pieces of plastic. Credit cards have due dates and if you miss those dates, you could end up with credit card debt problems and paying more money down the line. Explain the difference between good debt and bad debt. It is okay to accumulate good debt, such as taking out student loans or investing in a mortgage. On the other hand, bad debt includes frivolous spending. In addition, teach your children about credit reports and how their decisions affect their scores. Visit the Annual Credit Report website to look at your credit report and dispute any errors that might help your score.
- Be a role model. Set a good example to your kids by being a financial role model. For instance, don’t take on too much credit card debt. Not only will you be damaging your own credit, but your children will most likely mimic your behavior later in life. Also sit down and talk to your children about money. Talk to them about saving and long-term planning. Acknowledge your own financial mistakes and tell your children about them. This will ensure that they don’t repeat these same errors when they are older.
- Start with chores. Weekly chores can be a starter job and teach kids the value of a dollar. Pay your children based on household chores and separate the money they earn into separate jars. One jar is for saving and the other is for spending. You can also buy things for your child, and have him or her work the “debt” off. As a result, your child should do extra chores around the house.
There is no one-size-fits all approach to teaching your kids about money. By following these tips, your children will be on their way to a financially successful future!
If you’re struggling to pay off debt, ACCC can help. Schedule a free credit counseling session with us today.