Guest post by David Bakke. David Bakke lives in Atlanta, Georgia with his young son. In addition to running a reselling business online, David writes about making smart personal finance decisions on Money Crashers.
It is debatable as to whether a child or teenager should have a credit card. However, regardless of your personal belief, more children are walking around now with plastic in their pocket than ever before. Unfortunately, many do not understand how to use credit intelligently.
If you adopt the correct strategy and teach your kids about proper money management, you will ensure that your children avoid a lifetime of credit troubles. There are a number of methods for instructing kids of all ages:
1. Keep It Simple
If you want your children to truly understand your lessons, speak in simple terms. For instance, if they are too young to understand what “interest” is, explain to them that if the credit card bill isn’t paid in full, the issuer will charge more money. When it comes to reviewing statements, show your child how much interest will be due if the balance isn’t paid off, and point out the dollar amount that will be owed if only the minimum payment is made.
Showing children concrete examples in the world of personal finance helps bring the point home. Additionally, it can help to physically get down to their level. Whenever I explain any serious concept to my son, I take a seat beside him and speak in a one-on-one fashion.
2. Make It Fun
Have fun while teaching your child about credit! There are several board games that do exactly this. One is called Charge Large, where players travel around the board using cash and a credit card to purchase properties. The first person to have cash and a zero credit card balance wins.
Another option is Monopoly Electronic Banking, which is an updated version of the classic board game. Players use debit cards instead of cash, and the banker utilizes a computerized disc to transfer money.
When I play these games with my son, I add in little lessons during the game to teach him more about how credit cards work.
3. Clearly Explain Wants vs. Needs
Teaching your children the difference between wants and needs is another key to effective personal money management. Learning this difference was the number one reason why I was able to solve my personal debt issues. Kids need to be taught at a young age that a roof over their heads and food on the dinner table are needs, and most everything else is a want. Children will benefit from this lesson for years to come.