Teaching your Kids about Cash and Credit
21st-century kids tend to grow up pretty doggone fast. So, how soon should they be allowed to open a bank account or apply for a credit card? We asked around and found a lot of different answers. Here are some super savvy strategies that may set a positive tone for your kid’s future financial life.
When to start teaching kids about cash
The optimal time to start teaching money lessons to kids is well before they become teenagers, say the money gurus at Nerd Wallet magazine. Preteens can easily grasp the concepts of borrowing money from their mom and dad and repaying the small loan. Younger kids are ripe to learn about how to earn, save, spend and share. In fact, kindergarten age is not too soon to begin teaching children money strategies that can last a lifetime. Start with a piggy bank and kids may learn the joy of saving dimes, pennies, quarters and nickels. When they’re older, they’ll be ready for a real savings bank.
Toddlers who watch mom or dad visit an ATM and withdraw money may come away from the experience believing that money magically appears with a series of button presses. While this is cute and understandable when your child is three years old, this sort of magical thinking must be outgrown if the kid is ever going to be a financially responsible adult. Explain that the money dispensed by the automated teller was earned and deposited, suggests Forbes magazine. No deposit, no withdrawal.
Start saving at a young age
When your kids are in grammar school, open child-friendly savings account at your bank or credit union. Look for an account that allows children to make deposits but one that restricts cash withdrawals to the adult named on the account. Open an account that offers an ATM card, and teach your child how to create and use a memorable personal identification number, or PIN. Once your child fully grasps the concept of cash, it may be time to let them try their hand at credit.
If your child sees you take out a small personal loan and pay it back, it will help them understand how loans and repayments work. Explain how people with a negative credit history may pay more for loan products that folks with high credit ratings.
First foray into the world of credit
Some parents authorize their responsible teen to use their credit card for certain purchases. Credit card companies typically will not give a card to any minor, but most card companies allow a parent to obtain an additional card with the same number and their teen’s name. A parent with a good credit rating who gives a teen an authorized card can help them build a healthy credit score.
College kids who share off-campus housing are often loathe to put utility bills in their own name. Explain to your young adult child how a recurring utility bill that’s paid promptly can help them build their credit history.