Once upon a time there was a young man who was working full time while also going to school. He was making good money for a kid that age, and although he was paying his own way through school, he still had plenty of excess income to have fun on the weekends. When he started receiving credit card offers, he thought he had really made it. Despite warnings from his father, he filled out those applications, and when those little pieces of plastic came in the mail, the journey down “Bad Decision Way” began. Despite having some extra money, he started using that card, and when an emergency came and he really needed it, his card was already too far gone to help.
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Credit card debt builds like a snowball on a hill. It generally starts off small, but with a little effort, it will roll downhill and grow until it takes over everything. For some people it can take years or even decades to get out of that kind of mess. Young adults are not alone, but are some of the biggest victims of their own bad decisions.
Some, if not all of this is avoidable with a little education, but at what age do you start? There is no set age as every person is different in their maturity level and what they can comprehend. The earlier you start with kids about money in general, the better. If done properly, building good credit at an early age can set them on the right path for their future.
The earliest that a person can sign a credit card application is at the age of 18. However, waiting until they are able to use one is almost as dangerous as waiting to discuss sex with a teen who is already having it. The first step is teaching a child in the power and value of money. Once they get that concept, it will be easier to get into the deeper issues of credit. Here are ideas for building a foundation for children of any age.
It’s Elementary
Teaching about money can be done at a very early age. You can start with their allowance. Start with simple tasks like emptying the dish washer or making sure the family room is neat. It’s amazing what a child will do if they learn they can earn something in return. There are some parents that teach their children about taxes very early on. They show them that a certain percentage of the child’s earnings must go to pay for other things. This “tax” can be deposited into their bank account to also teach them the value of saving.
Pre-Teens/Teens
My oldest child is in the 4th grade in a Montessori school, and they start teaching the basic concepts of money and budgeting at a very early age. Each week, a group of three students (ranging from 4th – 6th grade) have to cook a meal for the rest of the class. They are given a budget, figure out a menu (and we are not talking peanut butter and jelly), create a list and do the shopping themselves (with adult supervision).
This has already translated into understanding of food budgets in our home. Expand this into the home. Let them create a shopping list. Give them parameters: How many people, how many meals, specific requirements like milk and fresh produce. Give them a budget and teach them about the value of money. It can become a game when you involve coupons. Who can save the most money?
Old Enough for a Spender’s License
From here, you can expand on the same ideas by using credit. For example, your child really wants that new video game system but doesn’t have enough saved to buy it. In this example, for the sake of easy math, they need $100. You can teach them about credit by lending them the money, but the money must be returned with interest.
Teach them about interest and tell them that there will be a 10% fee for every year (or any other timeframe you choose) it takes them to pay it back. So if the child knows that in one year, they have to pay back $110 to clear their debt, it is the first step in teaching about credit card debt. Put the money in their account or take them to a movie as a reward for understanding. You reinforce the concept that paying back a debt is a good thing instead of letting it build.
The bottom line is the earlier you teach a child about credit card debt, and money in general, the better off they will be in the future. Don’t let them follow that poor guy down Bad Decision Way.
Photo Credit: _Dinkel_, Robin Jaffray, B Rosen, 401(K) 2013