Tips on Teaching Your Children How to Use Credit Cards Responsibly
Children should be taught the value of money from a very young age. Where it is good to pamper them to an extent, parents should always enlighten them about ways to conserve and spend wisely.
The knowledge and habits instilled at a young age eventually become a fruitful lesson in the later lives. Thus, as a parent, you might often search for important lessons to teach your child about credit cards.
Credit cards are very addictive, and children often tend to be unmanageable with their first credit cards. However, credit card misuse can lead to huge debts which is upsetting for both parents and children themselves.
Hence, using credit cards responsibly will eventually prevent the youngsters from becoming spendthrift and sink in the burden of debts.
Parents are always advised to teach their children the value of every dollar. Understanding the importance and value of a minimum amount will eventually help them learn the value of money and make them think twice before overspending.
How to Teach Your Kids to Use Credit Cards Responsibly
Teach Kids the Basic Difference Between Debit and Credit Cards
Children often get confused between credit and debit cards. While using a credit card for the first time, children do not understand the meaning of “credit card debt“.
Before giving them their first credit card, help them understand that the money they are spending through credit cards, is actually a loan from the bank, which needs to be paid back within a period of time.
In simple words, it is actually not their money, but someone else’s.
Credit Cards Have Limit
Where learning how to use a credit card wisely is important, it is equally important to know the limit up to which the card will be valid.
Credit card limits depend on a number of factors and are determined on the basis of credit score of the individual. It also depends on the financial health of the individual to whom the card belongs.
Maintain Low Credit Expense
The smartest way to use a credit card is to maintain a low credit expense throughout. Every individual is assigned a credit limit which cannot be exceeded.
However, youngsters handling their first credit card often think that they can easily spend on anything up to the limit. They fail to understand, that even if there is a limit, it is not always possible to pay off bigger debts which invite bigger interest rates.
To avoid such circumstances, parents should advise their children on how to use a credit card wisely and keep the credit balance low. This way, the balances can be easily cleared without a hassle.
A safer way to manage a credit card is to keep the credit limit low.
Credit Card Debts Should Be Cleared on Time
Ever since the beginning, credit cards have always been our savior, especially in times of dire emergencies. Though useful, a number of people tend to misuse credit cards to a great extent and eventually keep sinking in loans.
The habit is, however, outrageous as it makes people dependent on debts and easy availability of money.
The young generation, using their first credit card, often fail take to take the terms and regulations of credit cards seriously and end up spending on trivial things like food and gas.
It should be taught to them that the money they borrow from credit cards should be paid off on time, or else, they would be levied additional interest, fines, home calls, and harassment.
Always fix a monthly budget and explain to your children that they CANNOT afford to exceed it under any circumstances.
Explain the Difference Between Need and Want
The primary reason of misusing credit cards is failing to understand the difference between needs and wants.
Children often want something pleasing and swipe their credit card right away. However, it should be explained that one should use credit cards only when there is a dire need or emergency of some kind.
Savings and Planning
Though flaunting a credit card is cool sometimes, getting addicted is a big NO. Using credit cards for the first time might lead them to getting hooked.
This results in a number of children to get shifted from learning the importance of saving and planning. Teach them how to save and be patient for anything they want to possess.
Fix A Budget
The best way to teach children how to use credit cards cleverly is by fixing a budget.
Fix a monthly budget which they cannot exceed. This way, they will learn to spend wisely and not spend on anything that pleases their eyes.
Avoid Peer Pressure
Many children often fail to manage credit card due to peer pressure. Whether a friend has bought a new iPhone or a brand-new PlayStation which fetches them unhealthy attention, youngsters often get the urge to imitate the same.
This makes them spend unwisely and thus indulge in ‘credit card debts’. Hence, as a parent, you should always talk to your children and make them understand that it is okay to not draw the limelight and seek temporary attention. Suggest them ways to rather invest for the long run.
The Money Borrowed Is Not Their Earning
As explained earlier, children often confuse between debit and credit cards. They tend to think that the money they get from swiping credit cards is their own.
Parents should make it very clear, that the money is not what they have earned but is being borrowed from someone else, and should be paid off.
While teaching them how to use a credit card intelligently, explain them that it is never okay to keep someone else’s money and not pay back.
Use a Credit Card to Build Credit
Borrowing or lending money from a reputed bank results in credit score build up. Credit card scores are beneficial in a number of cases, at almost all situations which involve financial transactions.
From buying smartphones to rents, paying off debts, and many other situations, credit score becomes a crucial necessity for individuals.
The smartest way to use credit card is to build credit. This is because, the higher the credit score, the better the benefits. To maintain a good credit score, credit card debts should be cleared off on time.
Hence, use a credit card to build credit, and not to fulfill desires.
Using a credit card for the first time can be really confusing, especially with understanding the limits and timely pay back processes.
Always teach your children that the money they get from credit cards has a time limit, within which it should be paid off. Crossing the given time limit will incur additional interests and thus would cost extra outlay for the individual.
It is always good to have your children's back but over pampering and over independence might lead them to a huge financial crisis at a later period of time. If situations get hostile, they might not be able to cope up with it.
Wrapping It Up
As an adult, we often fumble with the basic financial rules and it is very obvious to expect the same from the children.
It is very important to teach the children on how to use credit cards sensibly to help them live a financially secure life.