How do you teach your children about credit?

[Pansori]

Just curious... I feel like I talk to a lot of young people who do not have a single CLUE on how to approach money management and credit. I spoke with a 26 year old woman last night who's credit card was revoked (meaning the bank decided to close her account because she was no longer credit worthy) and she was screaming at me that we were breaking the law continuing to charge her interest. She said she wasn't going to pay the balance on her credit card anymore and was going to talk to her lawyer. =/ This is for a $524 balance.

Same day I also spoke with a 20 year old soldier who was having a hard attack over his statement closing with a $5 balance. He had been using and then immediately paying off his cc because he was under the impression that if it closed with a balance his score would tank. This poor guy was very upset.

I feel like I am often explaining very basic concepts to young people in regards to credit, interest, and how credit cards work. I speak to a lot of parents who get a credit card in their name for their kids and then pay the bills for them.

When I was a teen we had a personal financing class in high school. Is that not offered anymore? And what is a good way to teach children how to manage finances?

[cschin4]

I think the soldier was right to pitch a fit. If he thought it was paid off and it wasn't , why should he not then be given the chance to pay it off and close the account properly? I don't trust CC companies either. As for the girl, teach young people that credit is merely a convience for cash you already have. And, if you can't pay the balance in full, you stop using it.

[elessar78]

I don't use credit anymore, but credit isn't evil. Kids, adolescents need to understand what it really is and how the management and mismanagement of credit can affect their life in the long run. They need to understand risk as it applies to credit and subsequently how risk relates to interest.

They need to learn how interest is an equal opportunity force, it can make you a ton of money or eat away at your income.

We teach children so many abstract concepts in school like literature, math, science, phys ed but probably nothing more central to their existence as handling money isn't even discussed. We glorify capitalism every chance we get but don't teach kids/people how to exist well in a capitalist society.

Capitalism is by it's very essense about borrowing money, right? The treasures of the Renaissance were created indirectly by capitalism.

To me, the only proper use of credit is to build wealth/grow a business. But that's a very personal belief. Most of the way people use credit is to fund lifestyles and satisfy instant urges for stuff/experiences. Credit now is also a means of modern convenience that I will accept is pretty useful.

[thesmartnickel]

I would try to find a good personal finance blog or have them research the subject on their own. I have made some posts about credit cards at my blog, talking a little bit about how they work and how your credit score is calculated. Most parents who get a credit card for their kids and pay them off are doing a good thing for building up their credit score, but it is important for students to learn about them on their own as well. I was naturally curious about credit cards since they seemed like a benchmark on the path to growing up and becoming more mature.

[Pansori]

I think the soldier was right to pitch a fit. If he thought it was paid off and it wasn't , why should he not then be given the chance to pay it off and close the account properly? I don't trust CC companies either. As for the girl, teach young people that credit is merely a convience for cash you already have. And, if you can't pay the balance in full, you stop using it.

Wow, I think you misunderstood me, or maybe I was not clear enough. He was stressed about his statement cycle closing with a balance. He didn't want to close his credit card... the bank I work for caters to military, we are known for our excellent benefits and customer service, especially for soldiers. And he wasn't mad upset, just about to have a coronary because he thought every statement was suppose to reflect a 0 balance.

I also don't think all credit cards are demon spawns. Everything is provided in the terms and agreement... some cc companies are snakes, but I'm not being biased when I say that my company is very up front.

[karinabartram]

Every grown up knows that spending money you don’t have on things you don’t need will only get you in trouble in the long run. Therefore it is important that you teach your kids to only spend money they have worked for and earned, instead of buying on credit.

[couchrobt]

Parents should be aware that spending income/funds you don’t have yet on items you really don't need will only get you in problems in the end. Most parents who obtain a bank card for their little ones and pay out them off are undertaking a good thing for constructing up their credit rating as early as now, nonetheless it is vital for kids to understand about them on their very own as well. That will teach a kid.

[papa_squat]

I'm 26 and I elected to take a "Personal Finance" class my sophomore or junior year in high school. It was taught by a baseball coach (not to discredit his knowledge, but it was not exactly his focus from the get-go) and the class basically amounted to learning how to use a checkbook, how to fill out tax forms and the bare bones of computing interest. We never had any discussion about how credit really works, compound interest, or values of saving/investing/not spending in general. The book was pretty old and the lessons were very dry and without discussion of real word application, but I learned the very valuable lesson of how to balance a checkbook, which I still use on a weekly basis.

I think I, like many in my generation, grew up in a time of prosperity and therefore didn't really learn respect for money or where it came from. Growing up, talking about finances meant you were asking for trouble. My father had a great income most of my life, but he also had a shopping addiction (wardrobe, vacations, too much house and car, etc.). He hated looking at bills and left them for my mother, but the stress got to her and she later stopped balancing the books and started drinking. They divorced because of the mess, my father filed for backrupty my first year of high school and everything defaulted to my mother, who narrowly avoided backruptcy herself. Neither like discussing finances, so I learned the majority of my early lessons in finances by watching my sister. She took out personal loans to pay for sorority dues and payday advances for gas and fast food and got into a good deal of trouble when she ignored the bills. She has borrowed money from my parents and grandparents continuoualy because she can't even qualify for credit cards. She will be 30 this year and still has a rather large running tab with both parents and grandparents as well as $60k+ in student loans.

I'm very lucky in that I haven't had to learn the hard lessons myself, but I felt I didn't really know anything about finances, so I avoided the trouble of it mostly. I always had a job through high school and college and student loans to cover most of my bills, but I was never a huge fan of shopping and developed frugality out of habit. I made a basic budget and didn't allow much room for anything I didn't really need/ A group of friends and I stumbled upon a Chase customer recruiting seminar at a pizza joint near my university (if you signed up for a CC, you'd get a free pizza!) and of course I followed the pack. Most of my friends also had store CCs and ran into consumer debt problems before my CC even arrived in the mail, so I didn't carry it and only used it to pay my electric bill and paid it off each month so they wouldn't close it.

I didn't truly learn about how to get ahead of my finances until I graduated college and knew the grace period of my student loans would soon be up. I picked up some different finance books, started looking up terms I didn't understand and opened a savings account and retirement account. I took a chance to move across the country with a guy I was dating (who is now my husband) and was lucky to find a great job with health benefits and a 401k. With the downturn of the economy and job market, I think more people are becoming conscious of their financial decisions, but I do think that children should be getting more of an education about finances than they do, especially before they enter high school. Learning from other's mistakes is still learning, but I'm sad to see many of my friends stressed with debt and ill prepared for the future.

[jerrycates]

Just tell them ...explain to them that credit cards are used for emergency purposes only. It is not mean to splurge in shopping (when you have a daughter with 3 BFFs!) or meant to bring the gang and play pool (if you have a son). It is for them but for sensible use. Kids can understand well about money. Tell it to them clear and simple.

[Eric80]

How do you teach your children about credit?

If it is not financial classes are not offered in school then it should be and I don’t mean accounting type finance, everyday credit cards and mortgage loans some easy taxes ect. Kid need to understand credit/loans early before they grown up take advantage of the availability and some then unfortunately can not afford to pay back what they have accumulated and then life doesn’t become so great. Also debt is inevitable because of school fees and other cost, its is about managing it.

[Frugal]

I don't think debt is inevitable, but it is extremely difficult to avoid if you want to obtain an (advanced) college education, buy a house, etc. Unless you have a plan in place, you will probably end up going into debt in modern America. I do think high schools and middle schools should teach more classes, but you have to realize, not every young person has no knowledge of finances. Many are self-taught, or had parents who taught them basics and more advanced matters.

[photo]

Just tell them ...explain to them that credit cards are used for emergency purposes only.

That may work for some, but a better way is to explain how credit cards work. For many of us, cc are used as convenience. When I send a teenager to the store to buy groceries, I don't want to keep cash around, so my children use cards on which they're authorized users. The kids are not allowed to buy anything that isn't pre-approved. I keep tabs on the account, and it's never been abused.

Pansori, should we laugh or cry at the tale of the woman was going to talk to her lawyer over the interest she thought she didn't have to pay? Very generally, responsible and educated parents are going to produce children the same. The real problem society has is the people like that woman who don't have the slightest idea about some very basic concepts of adult life. Is ignorance an excuse to avoid responsibility?

[krantcents]

Some states are making a personal finance class a graduation requirement. Good thought! That in itself will not cure all the issues. Parents need to model good financial reponsibility and behavior. Students need to practice what they learned.

[Gary Barzel]

The best way to teach your kids is by example. You have to show them the value of credit and debt at an early age. Try to find practical examples for your child with regard to something he wants. Say if he wants a toy that costs $20 and he has an allowance of $5 a week, tell him you'll give him the $20 but for the next 4 weeks he will have to pay you back. Children learn quickly, and the earlier you implement these important lessons, the better off they will be.