As parents, there are many things you can teach your kids about money, but one of the most valuable lessons they can learn from you is the importance of credit. Financial responsibility is a lifetime skill, so starting the conversation early can help them succeed as adults. Here are some tips to get the conversation started.
1. Start small
Teaching kids about finances can be overwhelming to think about, but it can help to start small. Think about your own learning journey. Were you taught by your parents, or did you learn on your own? Are there things you wish you’d known earlier? How did you come to understand the basics of money, finances and credit? What are some of the things you believed or knew about money when you were a child—particularly your child’s age?
The most important thing is to ensure that the topic becomes an ongoing conversation and not just a one-time thing.
When talking to kids about money and what it means for their lives, make sure the conversation is age-appropriate. If you don’t know where to start, ask them questions: Do they know what money is and how it works? Do they know where it comes from and how to save? Do they understand the concept of lending and borrowing money? These questions will give you an idea of what your kids already know and will guide the conversation. After they learn the basics of money and saving, credit is a smart topic to introduce them to.
2. Use relatable examples
Once you get the conversation going, explain the concept of credit and how it works. For example, you could start with, “Credit means borrowing money from someone like a bank to buy something now, and you promise to pay it back a little bit at a time. But because they let you borrow money, you pay them back more money than what you borrowed, which is called paying interest. It’s important to pay back what you owe, because banks give you a score—like a school grade—that tells other banks and lenders that you’re good at keeping promises.”
When they understand those basics, you can discuss how keeping a good credit score can help them get things they need when they grow up—like a house or a car—and they could pay less money in interest.
3. Talk about the consequences of poor credit
While it’s good to talk about the usefulness of credit, it’s also important to discuss the consequences of poor credit, such as higher interest rates and difficulty getting loans. For example, a low credit score means they’ll end up paying more money in the long run, and they may not be able to buy things they need.
Start by discussing credit limits and timely payments: “When a lender gives money, they’ll tell you how much you’re allowed to borrow—and how long you have to pay it back. If you show good behavior by paying on time every month, you’ll demonstrate that you’re financially responsible and you’ll get a high score. The higher the score, the more you’ll be able to borrow. But if you’re irresponsible by borrowing too much or not paying it back on time, you may have to pay extra fees on top of what you already owe, and you could damage your ability to borrow more in the future.”
4. Lead by example
Teach your kids good financial habits, such as saving money and spending within their means. For example, you can start by budgeting for your trips to the grocery store and giving them a list of items and a price range to stay within. Paying bills can also be a teachable moment. To you, it may be a tedious activity. But to them, it can be quality time with you. For example, when your bills are due, you can include your children and walk them through the steps of making a payment. Explain how paying bills on time helps build trust from those you borrow from.
Also, remember that kids learn modeled behavior, so make sure you’re making responsible choices they can observe. Make sure you also learn—or continue learning—so when they come to you with questions, you know how to respond. Learn more about credit here.
Keep it going
The most important thing is to ensure that money and finances are part of an ongoing conversation with your kids and not just a one-time thing. Talk about it when you go grocery shopping, when you buy them clothes or toys, and expand on it as they grow older. You’ll instill curiosity and basic understanding they can build on later down the road.