The 5 Keys to Teaching Students About Credit
Money has a lot of messages for different people. There are social elements and then there are psychological elements. A lot of students think that they’re going to make 6-figures and that there will never be any economic pitfalls and sooner than later, reality sets in. Believe it or not, one of the largest groups of people filing for personal bankruptcy in the United States are those between the ages of 18 and 25 years. The majority of kids graduating from high school live paycheck to paycheck and know absolutely nothing about money except for how to spend it which is why teaching financial literacy to our kids sooner than later becomes absolutely critical.
Every child should be taught personal finance and learn to manage their money. Every child should be able to distinguish between a want and a need, so it allows them to make the right financial decisions. Having a basic understanding of personal finances is absolutely crucial for their success in life. That being said, teaching your child about finances is something that should begin at home with some simple money lessons. Even providing the most basic lessons like budgeting and building credit can go a long way. This guide covers the basics of teaching students about credit so they are empowered with the knowledge to be able to make the right financial decisions that impact them in both, the short and long run.
1. The Magic Card
The most important financial literacy lesson is helping your teenager identify the advantages and disadvantages of using the plastic card; the credit card. The #1 reason for students that drop out of college, is not because of academic failure or because they can’t afford their tuition, it’s because of the credit card debt!!! It’s really important that kids understand the implications of shopping for a credit card and what happens when they only make the minimum payment. Knowledge is the most basic and the most crucial element of good financial health and you need to impart this knowledge to your child early on. Educate your kids on how to use credit as a financial tool and the consequences that they would face, if used recklessly. Have them do some real hands-on work. For example, you could have your child use your credit card statements to calculate the cost of credit card purchases, so they get an idea of what you would really be paying in purchases, payments, interest, and fees at the end of the year.
Let’s face it, your teenager’s friends are going to be a huge influence on them and that includes their spending behavior and patterns. If Jackie bought a new pair of Bowtie Uggs, your daughter’s going to want one too and before the season’s over, there will most definitely be a new color in trend. That’s one of the reasons you need to equip your child with the knowledge that they need at an early age. Did we mention that “early age” is the key? Someone who is financially literate is highly unlikely to max out a credit card. And while you’re teaching your child, be sure to teach them the 3 c’s of credit; how to establish credit and how to meet payment deadlines, on time.
3. Child Identity Theft
Yes, your child’s identity can be stolen too! Child identity theft has become increasingly common. Fraudsters prey on their data because it’s in a blank state and is not regularly checked. The damage done as a result can take years to recover from. Consider freezing your minor’s credit to prevent the risk of identity theft. With the Dodd-Frank law, you can freeze and unfreeze you or your child’s credit at no charge at any of the three credit bureaus, Equifax, Experian, and TransUnion.
4. Credit Score
The length of credit history is particularly important for young people. A child will not have a credit score unless they’re a joint account holder or an authorized user on an adult’s account. The Federal Trade Commission recommends checking a child’s credit score to see if their information has been compromised. A good time to check is right around their 16th birthday. This also allows you address any problems that may have been caused by identity theft before your child turns 18. To check your child’s credit report, send your written request to a credit reporting agency.
5. Everyday Conversations
Don’t make a conversation about finances a challenge for your child with a sit-down discussion. Instead, talk to your child about money in everyday conversations. Involve them in some aspects of your monthly routine, like paying bills or checking your own credit score. It helps to have a real-world connection when you talk to your kids, so lead by example and teach them from your own experiences as much as possible. Make it fun!
Lastly, give your teen some real-world experience and allow your child to build healthy financial habits independent of you. Have your teen practice budgeting and managing their finances with a prepaid card. A prepaid card doesn’t impact your or your child’s credit score and is an excellent way for younger kids to get used to paying with a card. Try a prepaid card like the uLinkcard Prepaid Mastercard®. You can reload the card at your convenience and track their payment history online. It’s a great way to prepare your child for the financial temptations and money management issues he or she may face as an adult.