From learning to cook to operating a washing machine with ease, there are probably tons of life skills you’ve tried to impart to your children, especially as they head off to college. Another crucial lesson you may want to instill? How to use credit cards responsibly.
Offers for student credit cards are likely to come flying their way once they’re on campus. And while having a card of their own is an important tool to help them build credit, they’ll first need some guidance to understand how credit cards work, as well as the common pitfalls to avoid. Here are some tips for starting the conversation.
START WITH THE BASICS
One of the first lessons to teach your child is that while credit cards can be used to buy things, they need to be paid back, and on time. “I think the No. 1 conversation to have is that credit isn't free money,” says Tawnya Redding, a teacher and co-founder of money blog Money Saved Is Money Earned. Emphasize that credit cards should only be used for items they would be purchasing anyway and aren’t a free pass to splurge on things that don’t fall in their budget.
From there, give your child a basic rundown of what a credit score is and the factors that affect it, such as paying your bill in full and on time and keeping their credit utilization low. “It’s important to lay a framework for when and how credit cards should be used so that kids start to build these habits in their mind before they get their hands on a card,” Redding says.
WARN THEM ABOUT INTEREST
Credit cards are notorious for having high interest rates, so it's important that your child fully grasps the consequences of failing to pay their bill on time. “They must understand the implications of racking up debt,” Redding says. “Hopefully that will reinforce the need for the responsible spending habits described in your initial conversation.” Describe to them how interest on unpaid balances work, and consider using a credit card interest calculator to show them just how long it can take to pay off those seemingly harmless purchases.
DISCUSS THE PERKS OF RESPONSIBLE USAGE
After drilling down on the importance of not letting spending go unchecked, you’ll then want to talk to your child about the benefits credit cards can offer, beyond just being used to pay for things. Explain how responsible credit usage can lead to a higher credit score, and how that will be important when it comes time for them to do things like take out a car loan or apply for a mortgage. Plus, “things such as earning cash back, points and no-interest financing are great bonuses for responsible credit card use,” Redding adds.
DEMONSTRATE GOOD CREDIT BEHAVIOR AT HOME
As you begin to lay the foundation for good credit behavior, make sure your words are aligned with your own actions. “I am a huge proponent of leading by example,” Redding says. “Kids often don't do as you say, but do as you do.” You can do this by being open about your own credit card usage, as well as allowing your child to witness discussions about credit-related matters with your partner or other family members.
GIVE THEM REAL-LIFE PRACTICE
If you want to put your teachings into practice, once your child reaches a certain age, consider adding them as an authorized user to one of your own credit cards. Have them give you money for their individual purchases, and let them use any cash back or points they earn. This will give your child the opportunity to ask questions and help you further your conversations about credit best practices organically.
“We often learn best by actually practicing the skills we've been taught,” Redding says. “Allowing kids to practice using credit cards and reaping the benefits will help ensure that they continue to practice responsible use when they're able to open their own cards."