Financial responsibility is making a presence in our families lives earlier as the years go on. This year, consider talking to your younger pre-teens and teens about how to handle their money, and what credit truly means.
By the time your child is a teen, the basic concepts of money, saving, and spending, should be locked in. While there are many different lessons that your children should learn about money, understanding the concept of credit is an important topic that is often ignored.
How can you make sure your child is using credit correctly and responsibly? Continuously emphasize that they should only spend what they can afford!
Start with the basics
The beginning of credit understanding starts with good basic building blocks and financial foundations. Make sure your children understand the different between wants and needs, and that sometimes in life we have to make scarifies for purchases that we just can’t tackle in the present moment. Explain the process for developing long-term financial goals, and how practicing smart money habits will allow them to have to make fewer sacrifices in the future.
While your children may not have had to deal with the concept of interest quite yet, it certainly hits young adults quickly, with items such as car payments and school loans. Try teaching your teens about interest with their allowance. Offer them more money in exchange for a repayment plan down the line. This allows young adults to understand that when you borrow money, you’ll end up paying back more. This may be the most important lesson about credit you could teach your children, and is guaranteed to stick!
Show them how to be responsible with credit cards
Now that the basics of credit are down pat, it’s time to implement the credit card. This incredibly convenient piece of plastic is a symbol for debt and financial issues for millions of Americans. Don’t let your children become one of them by showing them how to responsibly pay off credit on a credit card. If you make a purchase, show your children the transaction, and then show them how you plan on paying the bill with the money in your bank account. This process will instill the plan of repaying back credit without accumulating interest.
Think you teen is ready to tackle the challenge of credit cards themselves? Consider opening a debit card in their name, which will allow you to help monitor and track their spending habits. Don’t feel like they’re quite ready for this much financial freedom? Try using a branded gift card instead! This will ensure that they won’t fall into an overdraft problem, and when you feel comfortable, they can graduate to higher responsibilities.
Want more tips on how to teach financial lessons to your loved ones? Give us a call today at E&Y Tax Preparation Services! (248) 362-1313