Credit – Do your Kids “Get” It?

There was a time long ago when one of my children said to me, “Why don’t you just use your credit card, Mommy?” At that point, I realized he thought a credit card was “free money” and we had to have a simple lesson about the concept of credit on the ride home from Target.
Do your children understand the concept of credit? It’s commonplace to provide teenagers with their first credit cards to make life easier when they’re away from home and also to have on hand in case of emergencies, but do they really understand the mechanics? In basic terms, credit is temporarily borrowing funds with the intent that the funds will be paid back at a future date. Often the “borrowing” someone else’s money is forgotten about, even by adults. It’s important to emphasize that part of the equation to reinforce the importance of making timely payments and only using a small fraction of the allowable credit limit.
Children need to be taught the ups and downs of using credit. It’s certainly convenient to just swipe a card in lieu of carrying a wad of currency from the ATM. Responsible usage helps establish good credit history resulting in the ability to obtain a home or car loan, or start up a business down the road. Credit cards can be far from “free money.” Teach children to watch out for annual fees, service charges, and high interest rates if the bill isn’t paid off each month. Explain to them how missed or late payments affect their credit score and that a low credit score will make the purchase of a home or car not only more difficult, but more expensive.
Credit seems so simple, but it’s something that we often take for granted. Have the conversation with your children now. Create scenarios and ask them what they would do in certain situations. What if they were out shopping with a group and saw their friends making purchases left and right? Would they think, “Oh, I can swipe my credit card for a few new sweaters/video games and Mom and Dad will never notice?” What will they do when they go off to college and start receiving credit card applications in the mail? Empower your children now!