How to make sure your children grow up credit wise.
You've taught them about money, but have you taught them about credit?
We usually start teaching our children about the value of money and how to handle it when they begin to understand the concepts of addition and subtraction. That's when they start to think through transactions - like how many sweets 50 pence will buy - and work out the answer for themselves. I know from experience that this can happen from as young as 18 months.
When they reach school age...
Now that they understand multiplication, you can explain the concept of credit and help them experience it first-hand.
When they ask for an advance on their pocket money for, say, a new toy, don't simply say yes or no. Explain that they have two choices. They can either save up until they have the money to buy the toy, or they can borrow cash and pay it back with interest. Make sure they understand that the toy will cost them extra if they pay on credit.
If they choose to save up for what they want, offer them interest payments (explaining how you'll work them out). To earn the interest, they just have to deposit their pocket money with you while saving up for that special buy.
Back to school shopping - a lesson in budgeting
First, set a budget for back-to-school shopping. Ask each child to make a list of essentials and estimate how much each will cost. They'll soon see how quickly small things add up and eat away at the budget.
Using the budget, let them pick out what they want to buy first, second and so on. They'll soon grasp the difference between necessities and luxuries and see the trouble compulsive spending can cause.
As your youngsters become more responsible, why not put them in charge of budgeting and buying for back to school? Encourage them to take advantage of savings at sales, discount stores and by spreading their shopping over a couple of months instead of blowing the lot on a spree.
Real-world practice with plastic
By their early teens, your children should be ready to handle credit responsibly. You might then let them carry and use plastic by ordering additional cards on your account. The kids will get cards with their names on them, while you'll get the bills (and have the responsibility for repayments).
Obviously, your offspring must understand that having their own cards isn't a licence to spend. Give them clear guidelines and put rules for repayments in place. It's important they know they must make regular repayments to clear the balance of what they owe, and the interest on it, either directly to the card issuer or to you.
College age - when credit card offers pour in
When your youngsters reach college and university, they'll be bombarded with offers of credit. With luck, the early training you provided will have exposed the myth of free money. They'll reward you by choosing and using their credit cards responsibly to avoid spiralling debt.
Now it's time to explain the importance of establishing a credit history. This will help them in the future - to get loans for cars, holidays etc., be offered favourable interest rates and, eventually, obtain a mortgage.
Obtaining a store card is a useful first step. Yes, interest rates are high. But with lower credit limits generally and fewer restrictions for acceptance than credit cards, they're easier for young people to obtain. A record of regular repayments on this initially modest scale will stand youngsters in good stead when they need extra credit or to borrow larger amounts later on.
It might seem strange to your children that paying for things with cash or a debit card can actually work against them. But it's really important for them to understand that, without a credit history, they could be in serious difficulties when they leave school, college or university.
They'll thank you for it.
Start them young and your children will grow into credit-active, money-wise workers, consumers, family members and citizens.
And when they hear friends complaining about growing debts and massive credit card bills, they'll thank their lucky stars they had star parents like you.
Val Valentine, advertising and direct mail copywriter
Copyright 2005 Val Valentine
Val Valentine is a B2C and B2B advertising and direct mail copywriter based in the Midlands, UK. With over 25 yearsí experience, she also writes commercials for TV and Radio, brochures, sales letters, articles, web content and has broad experience of strategic brand planning and development. You can reach her at +44 (0) 1684 772 021 or +44 (0 )7802 959 009.
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