By Manuel Tovar, September 03 – Hispanic Solutions Group
How to teach your children about credit? Talking with them is very interesting and teaching them the types of credit cards and other financial topics according to their age.
Today you have the beautiful task of teaching your children how credit works and how to spend responsibly, that will not only help them develop good credit; Rather, it will open the doors to many financial opportunities.
First of all, you should talk to your children about finances, because it is important and necessary to help them develop better money habits. Fortunately, finances have become a more common topic in many families today: according to data collected by a major banking entity, 83% of parents are talking to their children about money, while only half reported have had similar conversations with their own parents in the past.
There are many age-appropriate money topics for your children to address at every stage of their lives, and if you have teenagers, it’s never too late to start teaching them about credit. Talking to them about the types of credit cards and how to use them correctly will help them generate credit and spend responsibly, and from a young age they can learn to properly manage their funds.
“It’s important to teach your kids about credit early on, because building good credit takes time,” said our credit specialist.Hispanic Solutions Group Jessica Aliaga. “Building credit from an early age through responsible habits can help pave the way for important purchases and moments in life, as credit affects future living arrangements, the ability to buy a car, and even employment opportunities. “.
Here are some ways you can teach your children about credit so that they can prepare them for future financial well-being and security so they can develop positively financially.
- Teach your children how to build credit and use a credit card wisely and responsibly.
As it is commonly said, first things first: explain to your children how they work credit cards and how to use them correctly. It is important to teach your children that a credit card It is not just a piece of plastic with which you can buy the things you want; Also explain that there are consequences for not making payments on time or in full, meaning that they should be held accountable. “Lenders can make a lot of money with fees and interest, which can lead to bills much higher than the cost of the initial purchase,” said Monica Eaton, certified financial education instructor and author of the children’s book Money Plan. “That is why it is important for children to understand that the decision to use credit can have long-term financial consequences.”
It is important that you talk with your children about the importance of spending money, within your means and making payments as soon as possible so that you do not get bogged down with fees and high interest rates, in case you do not meet the timely payments.
- Talk to your kids about what a credit score is.
Explain to your children what a credit score and how it is determined by your payment history, how much money you owe, the length of your credit history, the types of credit you owe, and the number of recently opened accounts. Of these factors, payment history is the most important, accounting for 35 to 40 percent of your total credit score. “Children should know that it is important to always pay their bills on time, even if they can only pay the minimum balance.”
Kids are visual learners, so guide them through their next credit card payment. Show them different charges and credits on your account to help them familiarize themselves with the whole process.
3. Add your child to your credit card as an authorized user.
If you think your child is ready, add him as an authorized user to one of your credit cards. This will help you build good credit through your existing credit history, while also familiarizing you with using a credit card for occasional purchases or emergencies.
Andrea Woroch also said, “You often see college students who never had experience using credit cards or talking about credit at home with their parents getting into financial trouble and accumulating high balances,” who adds, if your child commits a mistake when buying something that you did not approve, use it as a teaching moment; it will eventually overpower it.
You can also start with a prepaid card, so they get used to having their own card. These cards should have apps that can be used to make instant transfers, track usage and will help your kids budget and spend within their means as it is a debit card.
4. Loan your child a small amount of money and ask him to pay it back later.
To get used to the concept of managing a loan, lend your child some money ($ 100 is a good start) and then ask him to pay you back. Then both of you come up with a formal payment plan that your child can stick to. The idea is to get your kids used to managing payments and communicating with their creditors. “Too often, adults will run into problems and avoid their creditors,” says specialist Sebastien Brault, “Actually, a proactive approach and open dialogue can solve the problem; creditors prefer that you talk to them rather than cheat on them. “
5. Offer rewards and incentives for the responsible use of credit to your children.
Finally, just as credit card companies offer rewards for positive credit card management, such as points and low interest rates, reward your child when they demonstrate responsible card use. “Recognizing your child’s positive credit management will make him feel good about money and influence healthy financial behavior in the future,” said expert Jessica Aliaga.
We invite you to follow our social networks: LinkendIn, Facebook, Twitter and Instagram to find more information related to finances. Also on our YouTube channel The Credit Channel to learn how to improve your credit. If you need help in repairing your credit, disputing debts that do not belong to you, or other services, call us at (612) 216-1599.