I was sitting at the kitchen table with my son when he noticed a credit card bill addressed to me. He picked it up, looked at it, and thoughtfully asked, “How do you get money onto your credit card?”
Confused by the question I asked, “What do you mean?”
He answered as literally as a child could. “Well, you buy things all the time with your credit card. How do you put money into it in order to buy things?
Now I understood! I took the opportunity to explain that you didn’t send money to the credit card before you buy, but rather the bank kept track of everything that I bought during the month and this was the bill for those things that I needed to pay. I like to use real math examples, so I was able to tie in the concept of budgeting explaining that I knew how much money I could afford to spend in a month, and so as long as I didn’t exceed that amount, I just paid the bill at the end of the month.
That answer seemed to satisfy him, and then he asked an even more valuable question: “What happens if you spend more than you have to pay?”
A valid question and one we all know the answer to. Not wanting to overcomplicate the situation with interest charges, late fees, and the rest, I simply answered, “You pay what you can, but then you still owe more money to the credit card bank. That’s what gets people into trouble; they get into debt.”
My son knows enough to know that being in debt is not a good thing. “So then people shouldn’t buy things if they don’t have enough money to pay for them,” was his answer, matter of factly, and then he was onto the next topic. In his 6-year old mind, that was the best solution and warranted no further discussion.
If only more adults felt the same way!
We all know that growing credit card debt in this country is a big problem. According to NerdWallet, the total U.S. credit card debt is $854.2 billion dollars, with an average credit card debt per household exceeding $15k. Woah! That number is staggering!
While emergency situations arise that warrant the need to accrue credit card debt, many of us – myself included -sometimes use our credit cards to buy things that we want, but don’t necessarily have the money for at that moment (I needed those shoes, really I did!). And while splurging every once in a while probably won’t cause you to be knee-high in debt, it is a slippery slope. As parents, we need to both set a good example for our children by paying attention to our own spending habits, while teaching them the basics of good credit card usage at the same time.
Credit cards may have gotten a bad rap, but used responsibly, they can be a great tool. Think of the free miles and other perks that come along with your own card. I encourage fully the use of credit cards, but with one important caveat:
Always pay off your bill in it’s entirely each month. And don’t spend money you don’t have!
You can help your children develop good financial habits from an early age by turning it into a game. Give them a pretend credit card and a budget, and involve them in the day-to-day household spending. Set up a mock store with their toys and have them go shopping. Older children could even have a real budget for something like their school lunches. Give your child an amount of money and have them accompany you while grocery shopping. They might just be surprised at how much their dollars will actually buy!
The most important thing to remember is that by giving your children a good education in credit card spending, you are setting them up for a lifetime of good habits – and that is invaluable.