You’re Never to Young to Understand Credit Cards
When many of us were children we watched in fascination as our parents counted out money or wrote checks to pay for products or monthly bills. In today’s society, children are more likely to see their parents and other adults swipe a plastic credit card when making a purchase. They question is, do they understand how paying with plastic actually works? Do kids instead simply wonder how putting a debit card into an ATM makes cash come out? My parents used to use the line about my thinking that money must grow on tress. Do today’s children, perhaps, believe that is magically appears from machines? It may well be worth taking the time to explain the basics of credit cards, automatic teller cards, and debit cards to children as they watch you use them. This may answer questions that you never even knew they had, and help them to grow up with a healthy understanding of financial management.
You can explain to children that when you swipe a credit card at a store, you are actually promising to pay them later through a bank. Show them the bill that arrives each month explaining that those charges must then be paid back to the bank. It will also be helpful to explain that an ATM is not simply a magic machine that is providing free money, but that the money actually comes from a bank account that you previously paid into by working and depositing a paycheck.
If you take the time to teach your children the concept of how credit cards work, the true value of a dollar, and how they can save and be responsible with money from an early age, this can help them to later succeed and build secure finances throughout their entire lives. Bringing your child along with you to the grocery store can be a good way to help them begin thinking about how to be a smart consumer. If you allow a child who is learning to read and recognize numbers help you with comparison shopping, this can be a fun and valuable experience for both of you.
At the checkout, point out to your child how the items are being scanned, and explain that a computer is keeping track of all the prices for the items you have selected for your shopping cart. When it is time to pay, as they get older you can even allow them to swipe your credit card. Always explain or remind them how a credit card works, emphasizing the fact that eventually the credit card will have to be paid off with your real money.
Providing an allowance which children can spend or save is a great way to give them a sense of responsibility and practice with using money. Even a small weekly allowance will allow your child to think about how to spend their money. You can also use this money to introduce the idea of saving. Open a joint or junior bank account for your child where they can learn about earning interest that helps their savings to grow.
If your child demands to have what they want "now," take the time to explain the difference between what someone wants and what they actually need. Parents should avoid buying an item that is merely a "want" just to provide immediate gratification to their child. Encourage the child to save their money over time for something they really want. This can build good spending and savings habits not only for them, but for you. When you model good financial habits, you will find that you are also practicing them, and so this opportunity may not only help your child to learn good financial habits, but it may help you to reinforce or refine your own.