While
many parents have agreed to talk to their children about money, credit remains
neglected. Yet, understanding how credit works, what it is, and how to keep a
good credit score is vital to healthy finances.
Although
you might think it is better later than now, the sooner you start, the better.
This brief article explains why you need to talk to your kids about the
importance of good credit and how to get started doing so. Keep reading!
Why Do Kids Need to Know How to Keep
Good Credit?
Instead
of viewing credits as unfavorable, it pays to know how best to navigate the credit
scoring process.
A good credit score allows you to purchase items with lower interest
rates.
Hence,
Americans
can purchase their dream home or cars and even invest in businesses. But why do kids need to know how the
credit scoring process works?
Teaching
your kids about credit early is critical. It ensures that they have a solid
financial rooting. Starting young helps them develop the skills to manage their
finances and have a good credit history. Now
that we know that teaching kids about good credit is vital, how do we do it?
How to Teach Kids About Credit
Management?
You'd
need to approach the topic with a more child-friendly methodology and
terminology to communicate effectively. Here is a quick brush-over of how to
approach the topic with kids:
Lesson 1: Why Credit Is Important
The
first lesson when teaching your kids is telling them why credit is essential.
After all, why should they care? You can tell them how credit ties to other
aspects of their lives and is vital for many major purchases.
Credit
provides leverage that is sometimes needed with large purchases. Explain that it's a system that
lets you borrow and pay back over time with some interest.
Lesson 2: The Basics of Credit
Kids
have to understand the basics of credit. They are credit bureaus, credit
reports, and credit scores. Credit bureaus include Experian®, Equifax®, and
TransUnion®. The bureaus collect information on your financial history.
A
credit report is the compiled information, and a credit score is a quick
summary. The score ranges between 300 to 850. A high credit score permits lower
interests and higher credit limits.
It
is important to help them understand that the higher your credit score, the less interest you will pay.
Lesson 3: Building Credits
There
are several misconceptions about building good credits. However, here are some
points you can note while teaching your kids:
● Use your credit account responsibly
● It takes time to establish a good credit score
● Only apply for credit for items
you really need
● Try to pay
your bills in full monthly!
Lesson 4: Getting Started
Tell
your kids they can get a credit card once they are 18. Kids typically have to
be at least 18 to open a credit card tied to their identity. If they are over
18 but under 21, they need to prove they can make the minimum payment on the
account.
Conclusion
Teaching
your kids about credit early is one decision you will never regret. Why? When
building financial competence, the earlier, the better.
Developing
excellent credit management practices takes a lot of work to teach. However,
with so much time to make it a habit, there is much room to grow. Parents can
use such resources as Credit 101 for teens as a kid-friendly approach to the
topic.
