If children are going to grow up into financially responsible adults, today’s adults need to explain credit and debit cards to them.
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Nowadays, children frequently see their parents and other adults swipe a plastic card when making a purchase. But do they understand how paying with a credit card works? Or how putting a debit card into an ATM makes cash come out? Taking time to explain the basics of credit cards or debit cards to a young child may answer questions you never even knew they had.
You should explain to children that when you swipe a credit card at a store, a bill will arrive in a month that must be paid back. Also, tell them that an ATM is not a machine that is simply providing free money, but rather the money actually comes from a bank account you have built up by working and earning a paycheck.
Bringing your child along to the grocery store can a good way to help them to start thinking about how to be a smart consumer. Letting a kid who is learning to read and recognize numbers help you comparison shop can be a fun and valuable experience. At the checkout, help your child watch the items being scanned, and let them know that a computer is keeping track of all the prices for the items you have selected for your shopping cart. Then, when it is time to pay, allow them to swipe your credit card. This is a great time to explain how a credit card works, highlighting the fact that eventually, the credit card transaction has to be paid for with real money.
Providing children with an allowance which they can spend or save gives them a sense of responsibility. Even a small weekly allowance allows the child to think about ways to spend their money. Additionally, an allowance lets you introduce the idea of saving money. By putting part of the allowance in a bank account, let you child know that he or she will be earning interest that helps their savings to grow.
For a child that demands to have what they want “now,” take time to explain the difference between what someone may want and what they actually need. Parents should avoid paying for an item that is merely a “want” just to provide immediate gratification to the child. Instead, encouraging a youngster to save their money over time for something they would like to have can build good spending and savings habits.
When your kids get a little older, you can explain the different types of credit cards, like low interest, reward and airline cards. These basic lessons will go a long way to making young people responsible with money for the rest of their lives.