“It’s important to teach your kids about credit early on, because establishing good credit takes time,” says Erin McCullen, head of consumer deposit products at Bank of America. “Building credit from a young age through responsible habits can help pave the way for major purchases and life moments, since credit impacts future living arrangements, the ability to purchase a car, and even employment opportunities.” Here are ways you can teach your kids about credit so you can set them up for financial wellness and security down the line. “Lenders stand to make big money from fees and interest, which can lead to bills much higher than the cost of the initial purchase,” says Monica Eaton, certified financial education instructor and author of children’s book Money Plan. “That’s why it is important that kids understand that the decision to use credit can have long-term financial consequences.” Talk to your child about the importance of spending within their means, and making payments as soon as possible so they don’t get bogged down with fees and high interest rates. Eaton says that of these factors, payment history is most important, and makes up 35 to 40 percent of your total credit score. “Kids should know that it’s important to pay their bills on time every time, even if they can only pay the minimum balance.” Kids are visual learners, so walk them through your next credit card payment, suggests money-saving expert Andrea Woroch. Show them different charges and credits in your account to help them get familiar with the whole process. “You often see college kids who never had experience using a credit card or talking about credit at home with their parents getting into financial trouble and racking up high balances,” says Woroch. If your child does make a mistake with purchasing something that you didn’t approve of, use it as a teaching moment—they will get the hang of it eventually. You can also start off with a prepaid card like Greenlight to get them used to having their own card. This card has an app that can be used to make instant transfers, track usage, and will help your kids budget and spend within their means since it’s a debit card. The idea is to get your kids used to managing payments and communicating with their creditors. “All too often, adults will run into issues and avoid their creditors,” says Sebastien Brault, CEO of Wingocard. “In reality, a proactive approach and open dialog can resolve the issue—creditors would rather you talk to them than ghost them.” This can be a bonus in their allowance, or if they earned rewards through a credit card they’re using, let them choose how to redeem it.
