What Your Kids Should Know About Credit

Alayna Okerlund

Last Updated: January 13th, 2021

Kids can learn almost anything by simply observing their parents. Unfortunately, parents can unknowingly pass along bad habits along with the good. Parents should be practicing good financial habits and taking the time to teach their kids about credit.

According to a WalletHub data report, the average household holds $7,849 of credit card debt. The future generation of credit card users is expected to follow this trend unless they are taught good credit habits. Parents can begin educating their kids about credit-focused financial responsibility with the following steps:

Know what defines good credit habits

Before teaching their children, parents must understand and practice good credit habits. According to money.usnews.com, some good credit habits that parents should practice include facing current debt head on, tracking expenses, paying bills on time and in full, understanding how many credit cards to use, and finding the right rewards card to use.

Credit repair services might be required for parents who don’t already have good credit scores. One solid resource that lists the best repair companies to help parents fix their credit scores can be found at bestcompany.com.

Explain what credit is

Once parents have their credit in order, they can start teaching their children. They can begin by explaining what the credit is and how it affects the lives of everyone in the family. Although this can be a difficult concept to explain, there are ways to simplify the purpose of credit. The easiest way to teach them, according to learnvest.com, is by telling kids that when parents borrow money, the credit agency is informed about how good the parents were about paying the money back. The credit report is treated like a “report card.” Although credit is more advanced, this might be a good way to start the conversation, especially if younger kids are involved.

Parents can also discuss what good and bad credit scores mean. Credit scores, as reported on usatoday.com, range anywhere from 300 to 850. Just like a report card, the lower the score, the worse credit someone has and vice versa with higher scores. Excellent scores range from 800 to 850. Explain to kids that the better the score, the more financial opportunity there is for big purchases like cars and homes.

Teach by example

After a brief explanation of what credit is, parents are advised to show kids when and how credit cards are used. As suggested by pennypinchinmom.com, one effective way to teach by example is taking kids shopping and using a credit card to purchase items. This allows kids to see the right time, place, and way to use a credit card. After the shopping trip, parents should show their kids how they pay the bill. When possible, parents should explain the step-by-step process as it is happening.

Show that credit isn’t scary

Any conversation about credit should include the topic of debt. Although debt, when handled incorrectly, can be an uncomfortable concept, kids should know that credit cards themselves are not positive or negative; they are simply a tool that can be used wisely or foolishly. Let your children see you using your credit cards, making payments, and discussing your financial goals with your partner. Older kids can even be a part of a family plan to pay down any debt. Being a part of the process can give children confidence and help them establish the same good financial habits.

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