Credit Card Education for Your Children

Unless you’ve shopped for a toddler lately, you may not realize that several toys geared to children as young as three now accept pretend credit cards in addition to cash. I’ve actually heard one say “Credit approved!” over and over again. Just the message we want our children to hear – not!

Far too many of the 25,000 or so commercials children see on TV every year include high pressure sales pitches with toll-free numbers for credit card orders – to say nothing of the basic message – to buy, buy, buy! And now, our little ones are going online, where paying with plastic is par for the course.

Children learn young that credit cards are an easy, quick way to buy things – but they don’t necessarily understand that those little pieces of plastic represent real money that we work hard to earn. And they certainly have no idea about the connection between the plastic, the bills, and their parents’ all-important credit reports and credit scores, which are formulas lenders use to rate our creditworthiness.

Once they leave home for college or work, your kids will be bombarded with credit card offers. Ideally, by that time, your children will have learned about the relationship between credit and debt and will have had many positive credit experiences, thanks to your good example. Even if your example hasn’t been so good, you can begin -- even before they go to kindergarten – to speak honestly about the pros and cons of credit and debt.

How to Talk about Credit and Debt with Children

Look for opportunities to discuss credit when your children are pre-schoolers. For example, when you’re playing “pretend store,” explain why you don’t want to always charge your purchases – because credit cards can make it too easy and too expensive to buy things you don’t need or really, really want.

In your give and take with the young shopkeepers, discuss what happens when you can’t afford the “piddlycrap” (as Elisabeth Donati, author of The Ultimate Allowance, would put it) you buy with a credit card. Make clear that when you can’t pay the credit card bill on time, you’ll have to pay even more.

Next time you play pretend store – let’s say, “Pet Store,” with their stuffed animals -- show what happens if you buy more animals than you can afford: You’ll buy one for yourself – plus up to three more for the Plastic Monster (or banker if you prefer)!

Pretend to buy a toy giraffe (for example) that you can’t afford, and then pick up three more animals. “I could end up paying for a lion, tiger, and bear as well,” you can say. Oh my! Discuss how many animals you’d really pay for if you bought one you couldn’t afford. One or four?

“That’s right!” you’ll say. “I’d have to pay for four of them, and that’d mean we have less money for things we really need – like food – and even less for presents and goodies.” (It’s never too early to get into discussions of wants versus needs!)

Every time we use our credit cards, we’re really getting a loan from the bank, which quickly pays for what we charged. If we don’t pay the bank right back, we have to pay extra money, called interest, which doesn’t buy anything new. It just makes the things we’ve already bought more expensive.

“But you know what? Even if I can’t pay the bank back right away, if I pay off what I owe as quickly as possible, I might only have to pay for three animals, or two – or maybe even less.” (It’s never too early to show kids the benefits of getting out of debt as soon as possible!)

Editor's Note: This article is the first in a four-part series containing consumer tips for parents of children and young adults.

Curtis Arnold - Curtis is the CEO/Founder of CardRatings.com and is considered a national expert on consumer issues involving credit cards. He is also the author of How to Profit from Credit Cards: Using Credit to Improve Your Financial Life and Bottom Line (FT Press, 2008). Mike Killian assisted with the writing and reporting of this article.

Comments

[Joanne]

My simple suggestion is get rid of your credit cards COMPLETELY. Most of my problems were due to my credit cards and my infatuation with using them to buy shoes.

[Angela S]

Personally, I don't like the idea of kids having credit cards. I know alot of adults who can't handle the responsibility of credit cards. How is a kid going to?