Teaching Kids about Credit

June 21, 2012 § Leave a comment

When is too early to teach kids about manners or values? As a parent and grandparent I’d say it’s never too early. You just need age-specific lessons.

Age-specific lessons are what’s needed for financial education. It’s never too early but we need to give right-sized lessons to children of different ages. Let’s talk credit and kids.

Cash- Kids have no idea where money comes from. Try to imagine you have lost your memory and think of the various transactions that go on in a day that involve cash. Kids don’t know how you got the money that they see you spending throughout a day.

Where DOES money ‘come’ from? Kids think money ‘grows on trees’ because they really have no idea how you got it. Books on money are available with characters such as The Berenstain Bears and there are even coloring books available to help get the money message into your children’s lives. As a child matures lessons of more depth would be helpful.

I don’t necessarily mean to explain that dollars are produced by the U.S. Department of the Treasury. I mean that the person who bags the groceries provides that service for money and the amount they earn is different from the amount of money their manager earns, as is the amount of responsibility. That their doctor and dentist earns a different amount of money because of skills learned by going to college. That the farmer earns money for planting and selling tomatoes and raising chickens and selling eggs. And that you go to work, whatever cool job you do, and that is what earns money to pay the doctor and the famer.

That money usually is deposited into a financial institution so you can more easily pay the famer and the dentist and the amount you receive is based on what job you do and may be based on how many hours you worked.   

Cash and where it comes from is a very interesting story about the lives of ourselves and our neighbors, and perhaps people all over the world. Tell one story at a time from the radio woman, to the paper kid, to the store owner, to their teacher and the emergency service provider. Tell their stories as you explain where money comes from.

Credit– Credit is also the story of money. But it is the story of borrowing money to buy something now, instead of waiting until you have the cash saved up enough to buy it.

This is  also told with the story of people. When your child runs out of allowance and still wants something, credit may be begged for as they try to have an item now instead of waiting for next week’s money. Credit is what people use when they haven’t time or ability to save for a purchase. This conversation easily goes into mistakes we, or others, have made using credit to buy all kinds of things from outdated electronics – like the early car phones – to whatever story you might share.

Get real– Now, get real. Start explaining how you do things. The house and car may be on ‘credit,’ in that you borrowed money to buy them. You may have saved for some of the purchase but not all. When I taught a class with middle school kids through Junior Acheivement on credit and ‘savvy shopping’  I began with what a credit card looks like, compared to a debit card, and the functions of each. These two types of cards look very similar. No wonder kids are confused.

You may even use play money to more realistically explain how money is earned at your job, is deposited into an account and then ‘drawn’ from the financial institution from the purchase of gas or a treat. In using a DEBIT card to pay the cell phone bill that you are using cash.

A credit card, that looks perhaps nearly identical to the debit card, is not tied to money that has already been earned and set aside for the purchase. How would they like to give up their allowance money for someone to borrow? What would they want in return if they were to go without their money? The incentive o lend to another is money, specifically interest.

Kids like learning grown-up subjects. Make the subject of cash and credit practical, real, and they will quickly understand the ins and outs of money.

 

 

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