Credit score, credit report, debt, savings… It’s not always easy to explain this to children, nor is the value of money and why it’s necessary to control oneself NOT to make impulse purchases! In addition, it will be easier for a 15-year-old than for a 7-year-old to understand these concepts, but you need to start somewhere.
Here are some ideas on how to introduce these concepts to your children as they grow up.
Start of primary school – money
- At that age children won’t understand what the concept of credit is. But they will understand something more tangible, like paper money and coins. They can learn to count by having fun and being able to touch the money with their hands.
- You can explain to them how a budget works. If you give them pocket money or if they receive cash gifts, teach them what savings and expenses mean. They can learn how to make their money last longer and figure out what toys or candies they can buy with the money they have saved.
From mid to late primary school – credit
- Learning opportunities will arise more frequently. Children will ask questions, such as why you didn’t buy an item. “It’s too expensive and I don’t want to go into debt.” This kind of question demonstrates that they are ready to understand this concept.
- Explain how credit works. What is the difference between a credit card and a debit card? Money “on” the credit card is not tangible money but it still has to be repaid. It’s also an opportunity to introduce the concept of interest and administrative fees if the amount on the card is not repaid in a single lumpsum.
- Having a good credit score is as important as having a nice “school report” with good “grades”. Explain to them that to get a good ”school report“ and good “grades”, it’s very important to pay back the credit card. Later you can explain to them the impacts of having bad credit. Click here to find out what the impacts of a bad credit report maybe.
High school – credit cards and savings
- It’s time to introduce more details and show your teenagers concrete examples. Sit with them when you do your monthly bills. Show them credit card statements. If you don’t pay off the full balance, show them the amounts paid in interest and tell them how long it will take to pay off your credit card debt.
- If you find that your teen is spending his pocket money faster than expected and is asking for more, make a budget with your child. Perhaps you can give them a “personal loan” and charge them interest, so they can realize that there is a cost to borrowing money and that it will have to be returned.
- The borrowed money has to be reimbursed otherwise there will be very negative impacts on the credit file and on their personal lives such as not being able to buy a house or a car.
- Open a bank account for your teen and get them used to saving money right away.
- Reiterate the differences between a debit card and a credit card.
College and young adults – credit score
- Take a 2nd credit card linked to yours but in your child’s name. Of course, set a maximum amount limit on the card with your supplier. Your children will have to pay the balance themselves and realize that they should not exaggerate their spending! Plus, it will allow you to see their lifestyle and see where they go!
- Explain to your children the difference between good and bad debt. For example, a student loan and a mortgage are good debts, because in the long run they can be considered an investment.
- Also, explain how to build their credit report. This is done by paying the monthly payments on time for example on a student loan, or by paying cell phone/Spotify/Netflix bills.
- If your child ends up with a bad credit record, there are ways to rebuild the credit score. Credit2Go can help your child with this.
The subject of personal finances may seem laborious and boring for children, but it is really important that these concepts be introduced to them at an early age to make sure they make as little mistakes as possible as a young adult! There are ways to make it more interesting and fun! Don’t be afraid to be creative!