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Retirement Planning

Teaching Your Kids About Credit And Debt


It’s never too early to talk to your kids about money, debt, and fiscal responsibility. Teaching your children the importance of understanding money, debt, and credit early can help them mature into responsible independent adults. Here are some tips and strategies to help you get the conversation started.

Lead by Example

Leading by example seems obvious and somewhat cliche but often parents do not consider how they present issues regarding money and finances in the presence of their children. As children develop they are constantly looking to the examples of their parents. Most parents will run into challenging financial circumstances and their kids will notice the way in which parents deal with those circumstances.

For example if a parent expresses being broke but suggests purchasing something outside of the budget as a way to relieve stress, this may expose your children to bad financial decisions. Co-author of “The Parents’ Guide to Raising CEO Kids”, Sara Cook comments “Before we actually talk to them about money, they are learning through emotion how money should be respected, how it should be talked about.”

Set Budgets and Goals

Children can learn the importance of staying within a budget and setting financial goals at an early age. These lessons can also be reinforced throughout young adulthood and help prepare kids for college and independence. Parents can help their children understand budgets by giving them more options. Yes more options.

If a child gets money from an allowance or from as a gift they might want to spend that money right away, then find themselves short when they want something else of higher value later. Before they are allowed to spend their money impulsively, parents can illustrate their child’s alternate options. Options like saving that money until next allowance and combining the money to purchase that coveted item, or buying something else now. When kids feel like they are the ones making the decisions they are more likely to stick to those choices than they would be if they felt as if the decision was mandated by the parent.

This is a great way to introduce the idea of budgets and goals. Budgeting is a key factor in the financial success of your kids. Parents can sit down with their kids and help them write out a fiscal plan. Asking them to write down and track how much they make in allowances per week, or month, or semester for those perspective college students.

If your kids are pre-high school they most likely do not have any month expense responsibilities, but, they can still learn about saving and budgeting for things they may want to buy. For young adults understanding how to calculate and stick to a budget will help them avoid bad financial decisions when living on their own.

Understanding Credit

Credit is complicated for most adults, but the concept of credit is fairly simple. If you borrow something from someone you will have to pay that back and in most cases you have to pay for the privilege. Parents should explain the idea of credit to their children as early as they can. This lesson is paramount for kids preparing for college.

Student loans are a type of credit and understanding how that credit works now, and in the long term, is extremely important. Loans typically come in two types, private and federal. Understanding the differences between the two types of loans are important. Be sure to research these credit option with your kids. This discussion will give your kids the tools they will need when facing other types of credit in the future, credit like student credit cards.

Credit reports and credit ratings become very important in adult life. This concept can be difficult to understand, but explaining a credit report like a school report card can be helpful.

The Long-Term Advantages

Instilling good financial practices early can have positive results well into adulthood. Parents can help kids see the long term advantages of fiscal responsibility by showing them the benefits and dangers now. Explaining some of the benefits and pitfalls you have experienced in your own life can be a great way to help your kids make their own choices in the future.

Your children may marry and start families of their own. These life lessons will follow them into their future relationships. Learning how to deal with financial stresses can save a future marriage some serious unneeded stresses. There are many ways to help your kids understand how money and credit will effect their potential relationships and give them some advice on how to deal with these circumstances when they do arise. Lessons like, paying-off debt fast, planning debt free rewards, and excepting responsibility, can help your kids plan for their financial futures and build healthy relationships with their future partners.

What are some other ways to teach children about credit and debt?

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Erin Thompson

Erin Thompson spent years managing her own blog about budgeting and debt. Because of that, she has great insights not only about managing spending and borrowing but also about running websites profitably. When she's not writing articles for us, she's traveling and looking for new types of wines to try.
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The content on Cashblog.com is for informational and educational purposes only. It is not financial advice and we are not certified financial advisors. Cashblog.com strives to keep its information accurate and up to date, but it may differ from actual numbers. We may have financial relationships with companies listed on our site. We may receive compensation for the placement of sponsored products or services. We work hard to write authentic and accurate articles.