If there\u2019s one thing you should teach your kids, it\u2019s how to manage their money. Unfortunately, this isn\u2019t something they\u2019ll learn much about in school, so it\u2019s on you as parents to make sure they understand how to manage their money and more importantly, stay out of debt.<\/p>\n\n\n\n
Tailor what and how you teach your child to their age, but here are 4 things every child should know about debt.<\/p>\n\n\n\n\n\n\n\n
In the world of instant gratification, we live in, it\u2019s important to teach kids that borrowing money (using a credit card), isn\u2019t the way to buy things. When you charge something and carry a balance rather than paying it off right away, you\u2019ll pay interest.<\/p>\n\n\n\n
The cost of the item instantly increases as interest accrues daily. The longer they keep a balance, the more the item costs.<\/p>\n\n\n\n
Teach kids about credit lines and how they work. For example, if a credit card company gives them a $1,000 credit line, that doesn\u2019t mean they can spend $1,000. To show responsible use of the credit line, only 30% of the credit line should be outstanding at once. This means no more than $300 for every $1,000.<\/p>\n\n\n\n
Debt isn\u2019t always bad. If there will be a return on your investment, debt can be good. Take for example, student loans. Yes, they charge interest, and they can be hard to pay off, but if it means you\u2019ll get a higher paying job or go further in your career, it can be worth it. This only works, though, if you have a major and career in mind versus just going to college just to go.<\/p>\n\n\n\n
Make sure kids understand what can happen if they don\u2019t pay their debt. Talk about secured (mortgage or car) and unsecured debt (credit cards). Talk about the worst-case scenarios and how bad it can be for their credit if they don\u2019t follow through on their financial responsibilities.<\/p>\n\n\n\n
Don\u2019t make credit use a secret. As soon as your kids are old enough to understand, let them see how you use your credit. Sometimes kids learn better by watching rather than listening. If you always use your credit card for purchases<\/a>, let them see how much you spend compared to your credit line and how much you pay off each month so they can see the right way to use credit.<\/p>\n\n\n\n