Some parents do everything they can to prepare their children for the financial aspects of adulthood, however others leave their kids to figure everything out on their own. While there isn’t exactly a “right” way to bring up your children, teaching them about finance and credit can help give them a head start in life, teach them the importance of financial independence, and show them how to manage their finances correctly. Below are some of the most basic credit lessons every parent should teach their kids.
1. The Importance of Checking Your Credit Report
Credit scores and reports may be seen as a difficult topic to teach your children about, but even grade school children can understand the importance of scores and grades, so use this metaphor to teach your children about credit. The more work you put into achieving a grade or improving your credit, the more rewards you will get. You can also use this metaphor to show them there is always an option to improve their grades, or their credit. Do it yourself credit repair isn’t hard if you are willing to put in the time and the effort to improve your situation.
2. Credit Affects Your Life
Hopefully the above advice will have illustrated to your child what a credit report and credit score is. Once they know this, you can show them how their credit score can affect their lifestyle. It’s likely that many of your possessions, such as your home or your car, were purchased on credit. You can explain to them that the better their credit is, the more chance they have of being accepted for high ticket purchases that they are unable to afford outright. You can also teach them that a poor credit score will make it harder/more expensive to buy things.
Another important conversation along the vein of financial stability and success is to have your child reflect on what that means to them. “Everyone has different definitions,” state credit repair experts at Lexington Law. “For some, it may mean fancy cars and a three-car garage. For others, it could simply mean lowering their debt, paying their bills on time, and improving their credit score. Across the board, it generally means a sense of security and peace of mind.”
3. Mistakes Can Cost You
Often, it is important to let children make mistakes so that they learn valuable lessons about what not to do in the future. However, where credit is concerned, mistakes can be costly and have long lasting effects. Missing a payment can lead to a credit score drop, and failing to pay back a bank overdraft can lead to a note being placed on your credit report for seven years. As a young person, seven years is an extremely long time to be without access to credit. As soon as they are able to understand consequences, teach them about the impact poor financial decisions and mistakes can have and the importance of financial responsibility.
4. Credit Cards Can Be Valuable
Some parents make the mistake of teaching their children to avoid taking out credit cards and loans unless they are desperately needed. However, this can be a mistake. A person with no credit history can have as hard a time getting finance as those with poor credit. Credit cards can be valuable tools that help to build financial independence, however they have to be used responsibly.
Teaching your children about the importance of credit is vital if you want them to be financially responsible as they get older.