First Credit Must be Earned
Children should learn about income and out-go when they are very young. They should have their first credit experience as soon as the parent believes that the child will be responsible enough to understand paying back what is borrowed. Explain that money does not fall from the sky or grow on a tree in the backyard. It might also be important to mention that you have not found a treasure chest filled with gold and you don’t have rich parents. Never be afraid or ashamed to tell your child “no” about something he wants and then explain “we don’t have enough money for that”. Explain that the money you use for the household and to purchase other items comes from what you and your husband earn. Once that is gone; there is no more. Also explain about having a budget and that you have to pay for the most important things first. Teach the child that paying the rent is much more important than having fancy clothes or the latest toy. Don’t forget to explain that even if you might use a credit card to purchase something, you have to pay for it in the end. Children need to learn to budget and save as soon as they know what money is all about. It is all about responsibility; financial responsibility.
Even a two year old can appreciate money. Relatives often give them money in birthday and Christmas cards. Let the child know that this is money he/she did not earn but it is his/hers to save. Make certain the child has a large bank; preferably one that is clear so he/she can see the money growing inside. This visual will show them what saving actually means. “Add money to money already saved = more money”. Eventually, move up to a real savings account in your local bank.
As soon as the child starts wanting to “help” mommy or daddy, start an allowance. It doesn’t have to be a lot; a nickel will do. Standing on a stool to help wash dishes is a job. When finished, you can give him/her a nickel for his bank. Doing small jobs and being paid for them instills in a child the fact that “when you work you get paid.” If you don’t work, you get no money”. It is never too young to learn this. As the child ages, you can add jobs for him/her to do every week for a higher amount of money. These things include: cleaning his/her room, feeding the pet, cleaning the pet cage or litter box, clearing the table. The child can help the mother bring in the groceries from the car. The child can help take out the trash or separate the recyclables from the trash.
You can make a chart for the refrigerator showing his/her earnings and spending. Help the child to understand the income and outgo and remaining balance. You can even make pretend checks for him to write to the bank parent or make a pretend credit card to use.
Doing the above from the very beginning should put your child on the road to successful financial health. By high school, many kids have taken an after school job or a summer job. This is the time that they need to learn the responsibility that comes with earning a steady paycheck. You should make it understood that their first credit rating will start from nothing and be built up over the years from his/her record of spending and paying.
Today many kids have their own credit cards.
• Some cards are backed by their parent’s signature (making the parent responsible for the balance on the card if the child does not pay it back.
• Some first credit cards are sent directly to the child through the mail as a solicitation.
• Sometimes the cards sent direct will have very small print that does not get read and the child ends up paying back the balance at an exorbitant interest rate.
• It is best to start your child off with a first credit card that is a prepaid card. Prepaid cards are easily obtained through the parent’s bank or at specific stores for their own products. Choose a first credit card that will be of the best use to your child.
• First credit cards can be for specific types of things such as: I-tunes, face book games, video game downloads, music downloads, movie downloads, Wal-Mart, Kmart, Best Buy.
• The first credit card might only be a re-loadable phone card for minutes for texting or talking or Internet use.
• The first credit card might be a Visa, Master Card, Discover or American Express prepaid card with a limit set by you that cannot be exceeded.
College age kids will most likely be the first time they encounter the deadly “student credit card application”. It is routine for credit card companies to have representatives on campus to target kids looking for an excuse to get the very first credit card on which to spend, spend, spend. Using the first real credit card responsibly will create a good credit report for the future.
• Explain to your child that he/she does not need multiple cards.
• Explain to your child to be cognizant of the APR charged on purchases. Explain about cards that charge excessive rates.
• Insist that with a first credit card a new consumer needs to carefully monitor spending and repayment. It is important to understand from the very beginning that payments should not be late and that the entire balance should always be repaid every month when possible. Explain that just one late payment can hurt his/her credit in the future.
Teach your child how to handle his/her first credit card.
• Getting the card on his/her own is the first step toward a credit history.
• Your child needs to understand that correct handling of the first credit card will establish good habits and can save much money over time.
• If your child does not handle his/her first credit card well, it can impact the manner in which other credit is offered to him/her.
• Your child should always check his/her credit card bill over carefully as soon as it arrives. Charges that are unrecognized should be disputed with the company at once.
• Tell the child that any recurring charges have to be considered before any spending can take place.
• They should never loan the card to another person.
When looking for the first credit card, take into consideration the interest rate and any “perks” offered by the issuing company. If the child is in college and needs to fly back and forth for the holidays, a card that accumulates “mileage” might be a good card. Discover card offers money back on each purchase that can be redeemed for gift cards or applied to the balance on the bill when it reaches $50.
When getting a first credit card, the new consumer should be careful about using “checks” issued by the credit card company. Most credit card checks have a hidden fee attached for their use. Also, it is important to know that these checks can be stolen and used by someone else pretending to be the real consumer. This will cause a nightmare for the person whose credit has been used.
Good credit is the best foundation in a young life. With good credit, it will be possible to purchase a home, a car and other items for living. The early establishment of good credit is important in all parts of a person’s life. Being responsible with one’s money is something that has to be learned. Once learned, it should be followed that entire person’s life in order to be successful.
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