It’s important to explain to your children how to use credit cards wisely. Once your children turn 18, they’ll start receiving credit card solicitations, so the sooner you provide your insight, the better. Here are a few things to point out.

• Make sure they understand it’s a loan. Tell your children that using a credit card is a privilege, not a requirement. They’re getting a loan from a lender, and they have to repay the amount they use – usually with interest. They should take it seriously and know the terms and conditions of the card they get. Encourage them to ask questions about anything they don’t understand – especially introductory rates.
• Help them decipher a credit card statement. Using your own credit card statement as an example, explain what each part means, and show what interest rate is being used and how charges are calculated. This way they’ll be able to see the difference between paying off a card quickly versus over time – and how much money you save the sooner you pay it off.
• Discuss the difference between needs and wants. The best way to teach children about good credit use is to talk about living within their means. People get into trouble with credit when they try to be someone they’re not – they have to buy the nice outfit or go on a fancy trip. They can’t afford it, so they put it on a card. Then, they have to pay it off and they pay way more for it than they should have. Or, they can’t make the payments and get into debt.
• Explain when to use credit cards. A new credit card user should only use their credit card for emergencies. Maybe they have to make repairs to their car and don’t have cash. Or, they have medical expenses they didn’t anticipate. By using it only for emergencies, they’ll have the money available when they need it.
• Discuss what to do when their card is stolen or lost. Your children should know the process for card replacement and if there are fees associated with it. If their card is ever lost or stolen, they should call their credit card lender as soon as possible. If their card is stolen, they have certain rights in recovering their funds. The sooner they report, the better.

Information is for informational purposes only and is not intended to provide legal or financial advice. The views expressed are those of the author.

Source:

Southwest Strategic Marketing, LLC