Written By: April Berggren-Batts
As adults, many of us use multiple plastic cards. At times the names and uses for each card can be confusing enough for us. Now imagine being a child seeing an adult paying for a product or service with a plastic card. Is it a debit card, credit card, prepaid credit card, gift card, ATM card, or something else?
It’s important to call each card by its correct title because each card has different uses and protections. Your consistency could lower the number of financial misunderstandings later in your child’s life. I’m going to focus on credit cards in this article but remember that teaching your child about debit cards or other forms of plastic payments is also important.
Ages 3-5
Introduce the difference between needs and wants to prepare them for making good spending decisions. This foundation is crucial because this will help shape how they use a credit card later in life. Show through example that you don’t put wants on a credit card unless you can pay it off in full each month. Those unnecessary purchases add up quickly and so does the interest associated with the purchases.
Ages 6-9
Present the concept of setting short-term goals for purchases or activities. Developing the discipline of making and achieving these short-term goals, will lead to a healthy spending pattern. If you want something, lead by example. First, create an action plan and complete it. Once you make the purchase discuss, how you feel. Was it a job well done, or do you have buyer’s remorse? Talk through this process with your child. Continue to explain the difference between wants and needs. Children listen more than you know.
Ages 10-12
In the digital age, it’s easy for children to see adults click a button and buy something at any time and at any place. Explain how online shopping uses real money, not play money. If you are using a debit card, then money comes directly out of your bank account to pay for the purchase. If you are using a credit card, then the credit card company pays for the purchase, and you will pay the credit card company each month with the money in your bank account. Emphasize the importance of paying the credit card bill on time each month.
Ages 13-15
By now if your child does not have a bank account, it’s time to include your child in the process of opening an account. Help them learn how to access their accounts online and teach them how to protect their identity. Although this account will not be a credit card account, the act of monitoring their account will carry over to when they do have a credit card. If you choose to have a debit card associated with their bank account, teach them how to keep their debit card safe and the importance of letting you know if it is lost or stolen. Talk about credit and the cost of borrowing money by reviewing credit card or loan statements, showing examples of possible finance charges, and the cost of carrying a balance from month to month. There are many calculators that can be used for examples. You can create a personalized debt example on PowerPay or use a premade interactive credit card example on MilSpouseMoneyMission.
Ages 16-19
Show them how to use future value calculators. The calculators in the ages 13-15 section focus-on how much money could be lost by not paying credit cards off in full each month. Now you can take this a step further and show what that money could have done if invested. Emphasize the impact these choices have on their goals. What could they buy instead of paying fees and interest? Would they like to travel, buy a car, save for a house, or invest in retirement? It’s important to let them know they are in control of these choices. They can decide now what kind of future they want. A future paying off the interest of unnecessary items or a future where they decide where their money goes. Their habits now will lead to big results in the future.
Random children were asked, “What is a credit card?” Here are their ages and answers.
7 years: “Isn’t that where you can pay for things and then you pay them back?”
7 years: “It’s used to buy stuff; mommy keeps it in her wallet!”
8 years: “Square card used to buy stuff.”
8 years: “It has all of daddy’s money on it and I know the code.”
9 years: “It holds money from your bank account so you can spend it.”
11 years: “It is a thing you use to get credits and get the money from your bank.”
12 years: “A card that is not linked to your bank account and you’re borrowing money so that you can pay for stuff.”
12 years: “It is attached to the bank, and you use it to pay for things.”
13 years: “A credit card is a card that has money on it, and you pay the company for the money I think.”
14 years: “It is a card with money on it. You can pocket from the bank.”
18 years: “Money you borrow to pay for things.”
19 years: “A credit card is a form of payment. You use money that’s not yours, then pay it off later. It builds credit.”
Do you know how your child would answer? Let’s make certain to set your child up for success. There are short videos to watch, books to read, interactive money games, and more to teach you and your child about credit cards.
Resources:
https://www.milspousemoneymission.org/military-spouse-raising-financial-fit-kids/
https://www.milspousemoneymission.org/financial-calculators/
https://www.consumerfinance.gov/consumer-tools/credit-cards/
https://extension.usu.edu/powerpay/
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