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Credits, borrowings, credit cards, and credit scores, are all undeniable facts of life, something that can aid us in our path to financial freedom, or keep us working till our deaths. It’s a shame that such an important aspect of life is given a miss across most schools and colleges, leading to generations of adults who spend their entire lives trying to make their way out of the dreaded rat race.
As a result, imparting the knowledge and skills pertaining to such a crucial part of life falls entirely on parents, and as always, it’s best to get started with the credit card. Although long deemed an unnecessary evil, a credit card when used well, can be a fantastic tool.
In this article, we cover all such aspects of a credit card, to help you give your kids the best overview on this subject, and prepare them for having one of their own.
1. Explain What Credit Cards Are & How They Work
To inculcate the responsible usage of credit cards, it’s best to get started with a brief primer on what credit cards are, and how they work.
It is important for your kids to understand that credit cards are like loans that must be paid back with interest, but unlike loans, they often charge exorbitant rates of interest, reaching all the way up to 36% per annum.
Other differences to mention include the nature of interest rates on credit cards, balance amounts, and repayments.
2. Discuss Credit Scores & Their Importance
A score that haunts us all through our adult lives, more so than our college GPAs is our credit scores. Discuss with your kids how credit scores are calculated and the various aspects of life they have an impact on, ranging from borrowing, to renting a house, among other things.
It is also essential to discuss the role credit cards play in establishing a good credit score, with repaying balances, using less than the credit limits, and more, helping signal responsible financial management, and thus, better credit scores in the long run.
3. Set A Good Example
No matter how much you teach and convey, kids ultimately learn from the examples you set for them. If you go overboard with your credit cards, shopping and spending impulsively, you can’t be surprised if your kids end up doing the exact same.
On the other hand, parents who regularly budget, use credit cards responsibly, all the while discussing and planning important big-ticket purchases set an undeniably binding precedent that kids carry with them throughout their adult lives.
A great way to truly drive this into them is by paying them an allowance for doing chores, followed by having them start a bank account online, to make them responsible for their own money.
4. Discuss Points, Rewards & Offers
Turning credit cards into this evil boogeyman is largely counterproductive, especially considering the substantial benefits they stand to offer for discerning consumers.
Most of you are well aware that credit card companies offer extensive sign-up bonuses, rewards, cashbacks, and other lucrative offers.
Most of these are marketing gimmicks to attract and retain users, with fees and interest rates making up for them, but with the right planning, consumers can take advantage of these, and enhance their overall financial well-being.
This includes things such as free protective insurance and warranties for all purchases made via credit cards, helping save on purchasing extended warranties. Similarly, certain purchases made via credit cards can result in a sizable cashback, and if balances were paid off right away, there are no interest rates to worry about.
Final Words
It is often shocking to see how many individuals make it into adulthood without even a rudimentary understanding of personal finances. As a parent, it is your responsibility to ensure that your kids don’t end up the same way, and credit cards are the best places to get started, when it comes to financial literacy.
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