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Kids & Money: Teach Your Kids about Credit Cards

For many parents, the idea of teaching their children about credit cards seems absurd. The thinking is that mentioning credit cards encourages irresponsible financial behavior. As a result, some parents avoid the subject of credit cards altogether.

It is important to realize, though, that just ignoring credit cards won’t guarantee that your child won’t use them — and use them irresponsibly — in the future. Your best option is to teach your children about credit cards, and how they can be used appropriately.

Explaining Credit Cards

One the things that makes money such a difficult concept to teach to children [3] is the fact that it becomes more abstract by the day. Your kids see you swiping plastic, and assume that it is an unlimited supply of money. Even if you use a debit card, the fact is that all plastic payment looks the same to children. It’s a good idea to explain the concept of credit to children when they can understand.

A way you can do this is to bring your child with you to the bank to let him or her see that you put money in the bank. It’s that money that is accessed with a plastic card.

When it comes to credit cards, you need to make sure that your children understand that the money isn’t “theirs.” It’s borrowed, and it has to be paid back — with interest [4] if the balance is paid off each month. You can show your child your credit card statement so that he understands that you have to pay the money back.

Unfortunately, younger children are going to have a harder time understanding how credit cards work. However, if you show them how you use plastic, and talk about it as money that you already have, they will start to get the idea. Older children, of course, can get a better grasp of interest and credit cards.

Visual Lessons for Credit Cards and Interest

You can aid your child’s ability to learn about credit cards with the help of visuals [5]. Showing your credit card statement is one to do this. You can also use online calculators that show you how much you end up repaying when you buy items using credit cards. This can really put credit cards into perspective for some children.

Help your child understand how interest works by lending him or her money for something he or she wants. Explain that a credit card is just a loan. If your child asks to borrow $20, tell him or her that the repayment on the loan will be $22. Talk to your child about borrowing, and help him or her understand that a credit card is a loan with easier accessibility.

You can really drive the lesson home by providing your child with a prepaid debit card or gift card for the loan, instead of giving him or her cash. Tell your child that he or she must repay you within 30 days, or you will charge interest. Explain that even though he or she has the card, the money on it isn’t theirs — it’s yours. Until you are repaid, they are in debt.

Allowing your child to practice with a debit card [6] (prepaid or regular) can help him or her learn to practice restraint when using plastic to pay, and it can provide valuable experience. Don’t avoid credit cards. Talk about good money habits, and help your child practice, and he or she is more likely to grow up with better money habits.

(Photo: sean dreilinger [7])