Q: When does credit card trouble begin?
A: Overall, it is much easier to avert credit card debt than to recuperate from a string of poor decisions. On the first occasion that someone maxes out a credit card, the responsibility of paying the charges and any added fees will make for a difficult but valuable lesson. Landing on solid footing is quite a challenge after a few missteps.
Keep in mind that any negative activity remains on the holder’s credit report for seven years. Most people do not fully understand how quickly compound interest can cause an increase on credit card balance – or how a poor credit score can make an impact on the future cost of borrowing money.
Q: How will this knowledge help in the future?
A: Acquiring these experiences can have a positive influence when lessons learned get passed onto the next generation. Children can build a strong foundation with credit and learn how to spend money responsibly if given the proper tools. Children depend largely on parents to guide them in financial matters. Part of being a young person is making the occasional mistake and learning how to correct it.
Early financial education will ensure that these mistakes are few and far between. For parents, not admitting old mistakes might mean that their children will eventually repeat them.
Q: What are the best ways to teach children about credit cards?
A: Spend once a week examining the credit card bill with children. Have them detail each entry item by item. By establishing this habit over a long period time, the child will learn how to be fully aware of any spending. When children go out in the world, they will have a solid credit rating, along with the knowledge of how to maintain it. Some insight into credit cards will reduce the odds of impulsive spending.
Additionally, parents are better off easing into this process with their children. A debit card or gas credit card is a helpful first step that eliminates much of the risk while teaching good fiscal responsibility.