The contemporary world runs on credit. From the largest to smallest purchases, almost everything can be bought through some form of credit, and people take advantage of that very convenience. Instead of worrying about how they are going to pay for their next meal, many hard-working citizens let their credit cards take care of that for them.
There are obvious dangers with credit dependency. Credit anxieties go back as far as 19th century England, where Charles Dickens warned his readers that the credit system was a system in which “a person who can’t pay, gets another person who can’t pay, to guarantee that he can pay.” The proper use of credit is tricky business, to say the least.
Whether they learn from their parents’ example or their neighbor next door, adolescents will be picking up tidbits throughout the course of their lives. With this in mind, some adults have decided to take the initiative on credit education. As parents, you can teach your children about credit and provide them with essential tools for everyday living.
Explaining Credit to Your Child
Your children’s understanding of credit most likely depends on their age and individual perception. You can teach them small lessons according to their level. There is no need to rush into detailing the intricacies of credit debt just yet, unless your kids are already at an advanced level.
Initial presentations of the concept should begin simple. For example, you can explain how there are situations in which people need to borrow money to buy their goods, and that there are people willing to offer that very service. Placing lessons in context or illustrating them with real world examples may be beneficial.
Credit can be drawn from a number of places, be it from the backing of banks, personal benefactors, or your own word and reputation. The important point is that it simply needs to be paid back. For your older children who may need a credit card in case of emergencies, explaining what interest is and the importance of completely paying credit back may help them mature and be prepared for large scale purchases one day.
Examining Credit Score
A critical point to emphasize is the cumulative affect credit has on people’s lives. Credit scores go up or down based on how people spend their money, and these scores can be regularly checked. Using credit, even in cases where you have money, can boost your score as long as you pay it back on time.
You can show your children how they can access their credit score and what certain technical words mean through your own report. Another method you can use is to include basic finances in day to day situations. For example, when you go to the bank, pay your dues, or even buy a box of doughnuts, you can highlight relevant points.
Protect Your Children From Identity Theft
A final key idea is the importance of protecting your personal information. Many people still fall victim to identity theft, often due to a lack of awareness, despite how common it is. You can teach your kids to keep their private information as safe as they can and not offering it to any which person or website they encounter. The good news about credit lessons is that they can easily be incorporated into everyday life and even provide a bit of spice to daily discussions.
David Milberg is a credit analyst in NYC.