How You Can Teach Your Children About Establishing Credit
If there is one subject your children are most likely not covering in school, it is probably credit. Without diving into all of the possible or most likely reasons why this topic is not being discussed, we’re going to help you understand the importance of educating your children sooner than later. There really isn’t an age that is too young to start learning about credit and how it works. That being said, as children get older, they will be able to grasp concepts more quickly and clearly, but there is no reason to hold back until they are certain age.
Teaching your children about money and how it works is the first step in educating them about credit. Whether they get an allowance or not, they should understand how money works. In today’s world, we have the many conveniences of online shopping, credit cards, debit cards, online banking, etc., but unfortunately, when not taught how these conveniences work, people tend to use abuse them. When someone doesn’t fully understand the nature of money, managing budgets and borrowing, they will most likely find themselves in a messy credit situation down the road, keeping them from purchasing homes, automobiles, furniture, and almost anything you can possibly think of that requires financing.
Once children have an understanding of money and how it operates, it is critical to stress the importance of saving. As parents, we tend to want to give our children everything we never had as children, which isn’t necessarily a bad thing. However, if you want your children to understand the importance of saving money you must show them that what they want doesn’t come with money they don’t actually have. This is a lesson that is extremely hard to learn outside of a real world example and experience. The reason we find so many young people in heaps of debt is because they adapted a lifestyle and habit of spending money they don’t have.
When your child becomes capable of saving money and understanding what it takes to afford something that they want, it is probably safe to say that they are ready to take the next step of accountability. Having a bank account at a young age is a great way to teach your children about banking and budgeting. If your child is a little older, but still younger than 18, co-signing on a vehicle is another great way to help them start establishing credit. Before co-signing it is extremely important to understand the risk and how your child’s actions could affect your own credit score.
Once your children have established some credit, you can show them how to check their credit report and score for free once a year by going to one of the three credit bureaus’ (Experian, Equifax, TransUnion) websites. Help them understand that each of the three credit scores might have a slightly different credit score for them because they report differently than each other.
If you have prepared your children and taught them about money, there really isn’t an age too young to start establishing credit for themselves. Hopefully, by teaching our children about credit we can help solve the debt and credit problems that are quickly arising in our society.