Teach Your Kids Credit and Financial Responsibility

As credit scores become more essential for life’s basic transactions — e.g. renting an apartment or getting utilities — it’s important that your kids learn about credit before they become adults and get their first credit card. Learning financial responsibility isn’t the most exciting thing for adults and it’s much less so for kids and teens. The key to getting your kids to learn financial responsibility is to make it interesting.

At an early age, kids are fascinated with money. They also learn at an early age that it takes money to buy things. If your kids watch you spend, but don’t watch you pay bills, then they haven’t seen the complete picture. From time to time, you should include them on the bill paying and budgeting routine.

Incorporate the Lessons Into Real Life

When it comes to money and credit, experience is often the best teacher. Give your child an allowance and ask how they plan to spend it. Encourage them to write their spending on a piece of paper — $5 on candy, $10 on comic books, etc. – to make sure they’re not planning more than their allowance can handle. After this, they’ve just created a budget, which is something to celebrate!

Even when they have jobs or allowance, kids come to their parents to borrow money. Use this opportunity to each them about credit. Give them a credit limit. For example, you might let your kids borrow up to one month of allowance at a time. Require them to make a weekly, bi-weekly, or monthly minimum payment on what they’ve borrowed, depending on how often they get paid from their job or receive their allowance.

If they don’t make the minimum payment, you know what happens — they get hit with a late fee. If they pay the balance in full, you could reward them by raising their credit limit, giving cash back, or letting them waive a future late fee. If they just the minimum payment, add a small interest charge to the balance, like $.50 or $1, to let them know there’s a fee for borrowing money. You might reduce their credit limit if they’re late on a payment or if you notice them making an unwise spending decision.

Don’t withhold your child’s allowance as payment for their debt. Instead, put the money in their hands and let them decide whether to pay their loan. You can even write out a weekly billing statement to remind them that they have an outstanding debt.

Prepaid Cards

Once your child is able to manage physical money, consider getting a reloadable prepaid card. If your child earns money from a job, they can have their check direct deposited onto the card. Or, if you give them an allowance, you can put it on the card directly from your bank account. Show your child how to check their balance, online and over the phone so they’re able to see how much money they can spend.

Games That Teach About Credit

Some of our favorite childhood board games have started using credit/debit cards instead of regular money. Life Twists and Turns and Monopoly Electronic Edition are two games you can play during family game night to help kids understand that there’s actually money behind the plastic we use to make everyday purchases.

Celebrity Calamity and Bad Credit Hotel are also two free online games that help kids learn financial management while having fun at the same time.

Ed O’Brien is an expert writing in all things pertaining to personal finance, specializing in credit repair. For more of his articles, visit his blog, CreditRepair.org.

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