13 things to teach your kids about credit cards

by Nick on August 13, 2012

Happy Monday!  After a kick-ass weekend that consisted mostly of answering about seventeen hundred questions from my three-year-old son, consisting entirely of the “what is that, Daddy” or “why, Daddy” variety, I figure it’s a good time to check in with a kids post!

Incidentally, I promised myself when I was younger that I would answer every “what is that” and “why” question my kid asked.  Turns out I may have bitten off a little more than I can chew, but so far so good.

Anyhow, I hope that I have a few years before he starts asking about credit cards and my credit card use… but when the time comes I’m going to be prepared.  I feel a bit like a hypocritical because I make no secret that I use credit cards.  I pay them off in full before the bill comes, but I use them.

But I don’t want my kids to get beat up by irresponsible use, so one part of me wants to just do away with credit cards and teach them to avoid them.  But having seen a bunch of generational transitions from my grandparents’ generation to my parents’ generation, and then down to my generation, sometimes the apple falls quite far from the tree. So I don’t think doing away with credit cards is the solution.  I’ll stick with my plan to use them responsibly and teach them to do the same.

Fortunately, WiseBread has a few suggestions on what I can teach them.

Let’s dig in (with my two cents, of course):

When they are young:

  1. Credit Cards Are Not Toys.  This advice is the “don’t play with credit cards” variety.  I agree though – it annoys the heck out of me when kids play with credit cards.  In fact, I’ve been known to “lose” even the pretend credit cards that come with toy registers…
  2. Credit Cards Are Not Magical.  Very important.  In fact, I plan on exaggerating this effect.  I’ll have to think about exactly how, but I’m thinking either making a pretend call to the bank to “make sure there is enough money in the account” or saying (out loud) “don’t worry, I counted the money in the bank and there is enough there to pay for this right away.”
  3. Credit Cards Are Private.  Makes sense.  Credit cards will need to go in the “things we don’t share” compartment of the brain.

When they are Older:

  1. Understand That Your Credit Limit Is Not a Suggested Target.  Haha – definitely a good thing to teach them.  Maybe the suggested target should be ZERO.
  2. Don’t Accept Every Offer You Get.  Imagine if you accepted every offer you got?  I don’t know about you, but I’d need a separate bedroom just for the cards….
  3. Keep Track of Your Credit Cards.  Pay attention to them!  Pay attention to due dates.  But maybe if you use them, just use one or two and keep the rest locked up at home.
  4. Pay Them Off in Full Every Month.  Or before!  I like the effect of paying multiple payments if your card allows it.  It makes you “feel” the spending a bit and keeps a more realistic financial picture if you ask me.  If you see $5,000 in your checking account you might be more likely to spend (with cash or credit) because of the false sense of security.  If you’re paying your cards as you go and only have $1,000 in your checking account maybe you’ll skip that slice of pie after your happy meal…
  5. Watch Your Interest Rate, It Can Change.  Important.  But I’d also teach them that interest rate can be irrelevant if you just pay it all off in full.
  6. Always Read the Fine Print.  I’ve been getting a lot better at this over the last few years.  If you’re signing up to take advantage of the “0%” financing, I’d suggest not signing up.  But if you do, make sure you know how long it lasts and what happens if you don’t pay it off in full by then.  You could get HAMMERED with interest backdating to day one.  That’s generally how it works.
  7. Know That Identity Theft Is A Real Problem.  Definitely a good idea to teach your kids that if their credit cards or credit card numbers get in the wrong hands it can be a pig problem.   This step is crucial, so it’s a smart idea to refer your children to some other resources regarding identity protection. You can never be too careful, and the repercussions of having an unprotected identity are not ideal. There are at least ten different ways you can protect your identity that are worth checking out, such as knowing how to craft a good password, understanding how encryption works, and also being aware of common hacking methods. Take a few moments out of your day and show your kids how to protect themselves before it’s too late.
  8. Be Careful When and Where You Use Your Cards.  Similar point.  Make sure you’re at legit sites when using your card.  You don’t want your number getting in the wrong hands.
  9. Get Your Credit Report at Least Annually.  I agree, but I’d do every 4 months by rotating each of the agencies over at www.annualcreditreport.com.  Even if you don’t use credit, checking your report is a good idea to catch identity theft.  If you do use credit, it’s extra important to know what your report says.
  10. You Don’t Need to Have Money In Your Bank Account to Use Your Card — But You Should.  This one needs some care.  I’d be sure to phrase this as “credit cards are dangerous because you don’t need money in your account” rather than “you technically don’t, but you should.”
Bottom line
Kids are eventually going to learn about credit.  I’d much prefer that it come from me – or at least that I am the first and most consistent resource.  Given that I use them I don’t think I’d tell them not to get one.  But I hope they treat them with as much care as I do.  And if they decide to get them I’d probably send them over to my buddy Jeremy’s site and have them compare the best credit cards for the most appropriate offer to fit their style.

 

Any parents out there with kids who have started asking credit card questions?  What did you do/say?

Until next time, put your credit card down and slowly step away from the mall!

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{ 16 comments… read them below or add one }

Roshawn @ Watson Inc August 13, 2012 at 8:18 am

#14 Just say no!!!

JK, Nick (well not really).

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Nick August 13, 2012 at 9:40 am

I totally agree, Roshawn! Thanks for checking in (and calling me out, haha!)! My only issue with just say no is it would be a bit hypocritical for me to say that because I use them. So I’m struggling a bit with it on my end. But how great would it be if the next generation “got it” and didn’t get sucked in like the last one?!?

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Daisy @ Add Vodka August 13, 2012 at 10:01 am

All great lessons for credit cards. I didn’t learn any of these, really, so when I got my first credit card it was havoc on my finances.

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Nick August 14, 2012 at 10:37 am

Sometimes you learn the hard way. But there’s something to be said about figuring it out yourself – makes for some strong beliefs!

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Modest Money August 13, 2012 at 10:15 am

I agree that it’s better to teach kids how to responsibly use credit cards rather than teaching them to avoid credit cards completely. That just isn’t practical these days. I am curious as to why you say to not sign up for a credit card to take advantage of 0% financing. I’ve done this with both of my car loans when they dropped down to about $5k left. It was a great way to save money on interest payments.

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Nick August 14, 2012 at 10:40 am

It’s not like the 0% is a “bad deal” by itself, but I’ve read that a vast majority of 0% teaser rate loans aren’t paid in full before the teaser rate expires. When that happens you’re generally responsible for a high interest rate from the beginning, as if there was never a 0% rate. So it’s not really a bad deal, but it’s just very risky. A lot of people get burned.

(Also, if you’re using a 0% balance transfer for credit cards, it’s not a “real 0%” most of the time because most cards have a 3-5% “transfer fee.” It still might save money if paid off before the rate expires, but if not, you generally end up paying MORE interest because the rate is high (and backdated) and you already paid 3-5% for the transfer fee).

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MoneySmartGuides August 13, 2012 at 12:46 pm

These are all great points. I especially like the one about your credit limit not being a target. I’ve had many conversations with people in credit card debt who always say that since the credit card company gave me a line of $10,000, they thought I could afford that. It frustrates me that the blame is passed to the credit card company. (Granted, some blame does lie with them, but that is another post.) Just because you are approved for $10,000 doesn’t mean you should go out and spend it. Understand what you can afford and live within your means.

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Nick August 14, 2012 at 10:42 am

Yeah, I’m a big personal responsibility guy, but do think the banks can’t shield themselves from all of the blame. The same argument’s been made on mortgages (The bank approved me so I thought I could afford it…). Very good point.

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John @ Married (with Debt) August 13, 2012 at 2:06 pm

This is great stuff. I too am struggling with this, as my oldest is 7. I need to develop some sort of allowance-for-chores scheme to teach the value of work and saving.

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Nick August 14, 2012 at 10:43 am

Wow – you’re a lot closer than me. Definitely let us know how it goes (feel free to do it as a guest post, John, and I’ll put it up here). I’ve been doing the “work for money” thing with my son for a while now. From 2 years old he knows if you want money you need to go to work. Granted, at this point it’s mainly repetition of what I say, but hopefully it sticks as a concept, too. I’ll be working pretty hard on that one.

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JP @ My Family Finances August 13, 2012 at 9:48 pm

You definitely have to do something to educate your children about credit cards. Whether you want them to or not, they will get access to them. It’s better to teach them how to use it properly than to leave them with no tools later in life.

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Nick August 14, 2012 at 11:21 am

Totally agree – similar to drugs and alcohol – you know they’re going to hear about them and have access to them, so talking about it with them is important. At the very least, having the conversation early and often may make them more comfortable reaching out to you about it when they come across them.

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Kooz August 14, 2012 at 3:30 pm

I’d add that if it costs less than $20, use cash. People always buy more when using credit cards.

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Nick August 14, 2012 at 4:15 pm

I like it!

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Amy Turner August 16, 2012 at 9:33 am

I know kids are getting smarter and more tech savvy nowadays. It is best to treat them as intelligent human beings, not that they are just kids. So when they ask questions about credit cards, we should answer them as truthfully as we can. They will understand and be responsible about it later especially as they grow older and have their own credit cards.

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Nick August 20, 2012 at 10:19 am

Thanks for checking in, Amy. I think the key is to make sure they’re prepared to make wise decisions about money so when they’re older if they choose to use credit cards they can be responsible with them. Thanks again!

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