How to Teach Your Kids About Credit Cards
Have your kids ever asked you how the rectangle piece of plastic you carry in your wallet can pay for things? Do they think it's free money?
"Just charge it, Dad!"
Credit cards can be an abstract concept for kids to understand, but it's crucial to their financial education, right along with bank accounts and budgeting. Starting early with simple conversations and a good example on your part can get them started on the right path toward financial responsibility.
Because talking about financial topics can be difficult, here are some simple prompts to weave these topics in conversations with your own kids — whether they’re 5 or 15.
Key Concepts to Discuss and Model
Credit Cards Are a Convenient Way to Pay
They’re accepted almost everywhere and make online shopping a reality.
Younger kids: “If the book store doesn’t have the one you’re looking for, we can use a credit card to buy it online.”
Older kids: “My credit card allows me to buy things from almost any kind of store, in real life or online, even if they’re in other countries.”
Credit Cards Are a Safe Way to Pay
If you lose the card you can just get a replacement card, unlike cash. If someone steals it, you’re not liable for any fraudulent transactions.
Younger kids: “Using a credit card allows me to still make large purchases without the risk of walking around with a big pile of cash.”
Older kids: “Credit cards keep my money safe in the bank. If my card is lost or stolen, I can quickly get a replacement and not lose any money in the meantime. If a thief uses my card, I don’t have to pay for anything they buy.”
You Build Your Credit Score When You Use Credit Cards Responsibly
A good credit score is critical for big financial goals such as purchasing a home, buying a car, taking out a loan or starting a business.
Younger kids: “When I’m smart about using my credit card the bank knows it can trust me and that’s how we got our new car.”
Older kids: “Since I’ve always been responsible with my credit card usage I have excellent credit. That credit means the bank trusts me enough to help us buy our last car and our house.”
Some Credit Cards Offer Perks Like Rewards and Travel Benefits
Many cards have great benefits like discounts, cash back or travel points. Talk with your kid about how you are earning rewards when using your credit card correctly.
Younger kids: “I’m using this store’s credit card when we shop here because it makes everything cheaper.”
Older kids: “When I use this card at the gas station, we get extra points that we’re going to put towards our flights to New York in the fall!”
Credit Cards Are Not 'Free Money'
With no visible exchange of cash it can seem like credit cards never run out. Explain how everything purchased with a credit card will eventually need to be paid for.
Younger kids: “The bank is paying for it now, and when Mom gets home, she’ll pay the bank back.”
Older kids: “At the end of the month, I’ll get a statement of all my purchases and I need to have money in my bank account to pay it all off. If I can’t pay it all off right away, I will owe the bank interest fees until I am able to pay them back.”
Credit Card Debt Is Expensive
Credit card interest rates are very high. As much as possible, only use credit cards to buy things you can pay for immediately. Don’t let the convenience of credit card shopping get the better of us.
Younger kids: “I only use my credit card if I have money in my bank — or else I can get in trouble.”
Older kids: “No, I can’t just charge it on the credit card because I don’t have enough money for this in the bank. If I don’t pay it back in full at the end of the month I’m going to get hit with fees and it’ll make it that much harder to pay it off the next month.”
Tips to Effective Teaching
Financial literacy can be equally important and confusing, especially for kids. Instead of one huge speech right before your child goes off to college, try sprinkling thousands of small conversations throughout your daily life.
Credit cards are powerful tools that can help with managing money but they can be very dangerous financially if used irresponsibly. Discuss the pros and the cons of credit cards and how to handle the temptation of overspending.
Set a Good Example
Actions speak louder than words. Show your kids your smart money moves and help them set up their own budget. If you feel comfortable, discuss with them your own financial plans.
Create Low-Risk Opportunities to Practice
After you feel they have a good understanding of credit cards, budgeting and good spending habits, you could begin building your kids credit scores by adding them as an authorized user on your own credit card account. This will help build them credit and give them a chance to work through the whole process with you.
There are many things that we, as parents, are responsible to teach our children. Financial literacy and credit card usage can be one of the most important. With simple, regular conversations sprinkled throughout every day life and using everyday examples, your kids will be able to understand the serious responsibility and perks that can come from using credit cards.
First published , last updated
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved or otherwise endorsed by any card issuer.