Wednesday, May 29, 2013

Finance: Teaching Your Kids About Using Credit

The Bottom Line:
Every chance you get
Talk to your kids.  And then
Show them with action

Remember, Your Kids are Watching Your Actions

I can vividly remember the first time I saw my parents use a credit card.  We were on vacation when I was in 4th grade, and we'd had some car problems.  Dad paid for the repair with his credit card.

Now I should back up a little.  This was before the time of the rewards credit card and the internet.  People still used checks for many of their purchases.  And you needed that credit card as a form of ID to cash checks.

We'd also talked as a family and heard on talk radio about how dangerous credit card debt was.  I'd heard about the high interest rate and how impossible it was to pay it off once you got started.

So one reason this incident stands out in my mind is because I was convinced we were going to quickly go down the road of debt.  Fortunately, Dad explained to me that they had the money; they just didn't have easy access to it.  They would pay off the balance when we got home in full, so we wouldn't have to pay any interest.

When the bill came, Dad also made a point of showing me he was paying things in full.  No, I hadn't doubted him.

But I did learn a lot from this story.  I mean, it's stuck with me for over 25 years.  I learned that credit cards can be useful in an emergency.  There is nothing wrong with using a card if you use it responsibly.  And if you pay the balance in full when the bill comes in, you won't get caught in the circle of debt and interest that can cause financial heartache.

Later, my parents did get some reward credit cards and started using them more regularly.  And I was able to watch as they always paid their balance in full every month.

So, what is the point I am trying to make with these stories?  Remember, your kids are watching your actions.  And something simple like paying bills can be a great time to teach important lessons.  Yes, talk with your kids about the importance of using credit wisely.  But then model it.  And be open with them as you pay bills and make financial decisions.  They are watching and absorbing more than you realize.

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