Parents are often found ruing about how fast their kids are growing. In your natural parental instinct to protect your children, you don’t want to tell them about money matters and think that there will be a lot of time for them to learn about such things later. But sooner than you know children grow up and may end up in debt if you do not teach them about credit and credit scores from an early age.
In the day and age that we are living in today, credit and credit scores have assumed primary importance. It is thus safe to assume that the need for maintaining a good credit score will only assume greater importance as the days’ go by. You thus not only need to lead by example by making a continual attempt to improve improve score, your children need to know about credit and credit scores from an early age too. Here are some must learn lessons for kids about credit and credit scores.
Credit is a loan
Children over 5 years of age are old enough to learn about credit, and you do need to catch them young. The usage of credit may be a complex thing to understand unless explained since all children see these days is you swiping a card at a retail outlet or using a piece of plastic online to make purchases. They may therefore grow up with the notion that there is an endless supply of money on the card. The concept that the credit is essentially a loan thus has to be established at an early age. If your child is along with you when you are using your credit card, take the opportunity to explain the concept of credit and how it is important to pay back the “borrowed” money within the stipulated time frame. In fact, you can start your lesson at a departmental store or a toy store. If there is anything that the child is asking for and does not have enough money saved for the same, consider giving her money to buy her stuff and tell her that she must return it with her pocket money with a little mark up as “interest” within a preset time frame that you decide upon mutually.
A credit score is like a good grade
If she does not get that much pocket money, convince her to do some extra jobs such as chores around the houses for which she gets “paid”. If she returns the money, she has borrowed within the stipulated time frame successfully, she gets a “good grade” that is akin to a good credit score. Tell her that since she has been able to fulfill her commitment you now have faith in her to lend him money the next time as long as she returns the money the way she did the first time. If you continue to follow this example, you can be assured that you have not only taught your child the first lesson about credit and credit scores, you have instilled in her the first lessons about maintaining good credit behavior. Given the hard work it will require on her part to repay the loan, she too will think twice before pestering you the next time round!
Credit cards must be used judiciously
Teens and pre–teens (11–12) year olds can grasp the concept of a credit card. To such children explain how a credit card works. Show them some credit card offers you receive in your mail and teach them how to use web aggregators to compare things like interest rates, annual percentage rates and fees. Most importantly, show them your credit card bill and tell them how important it is to repay your bill within the set period in order to increase credit score. Tell them how by making a habit of repaying bills on time, they can have complete control over debt. Needless to say you have to practice before you preach and must maintain good financial habits such as timely repayments of bills. If your child or children are witnessing you at ease because you have made it a point to enhance your credit score by using your credit card judiciously, chances are they will learn to do the same.
Credit scores must be monitored
If you have been teaching your child about credit and credit scores, she should be aware of CIBIL and other credit bureaus by the time she reaches her teenage years. During her teens, she should be told about the importance of keeping a periodic check on one’s credit score. Once again, you should lead by example here. First up therefore, inculcate the habit of checking up on your CIBIL score yourself. Show your child the CIBIL report and explain to her how it is to be read. It is good to let her know that this is an exercise that must be carried out periodically so that there is no scope of errors and other discrepancies in the report. Once your teenage child sees you keeping a constant vigil on your CIBIL report, and also sees the effort you are making to increase your CIBIL score, she is likely to maintain the same habit as well.
These basic lessons about credit and credit score bode well for your children and will give them the basic foundation they need to handle money matters deftly in life. So do not wait for your children to grow up to teach them about credit and credit scores. Impart such lessons early to truly prepare your children for their days ahead.
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