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4 tips for teaching your kids about credit

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Teaching your kids about something that we, as adults, often struggle with can seem like a mission impossible but it doesn’t have to be that way. As they move into adulthood, helping your children understand the basics about credit and borrowing money, before they find themselves inundated with credit card offers and loan deals, can enable them to responsibly handle their finances and make better choices later on in life.

While they may already be well versed in saving their money, here are 4 ways you can teach them about credit and help them avoid future mistakes.

1. Teach them what credit actually means

They might have seen you use credit cards at the local shop or talk about the loan for a car but take time to sit down with your children and explain what credit actually means. Talk to them about the principles behind earning money, borrowing it and of course, paying it back. Tell your kids about the different types of debt – good and bad – and what to look out for as they navigate the credit world.

 

2. Choosing the right borrowing amount

It’s important to teach them early on to borrow only what is appropriate for their needs. A useful suggestion is to make a small purchase for something they want, and allowing them how to pay you back for the item. Help them set a budget to make the payments and show them how to save and pay amounts over time to make the purchase from their weekly or monthly allowance. In the process, you’ll teach your kids how to track the outstanding balance, how to monitor their savings plus make payments on time until the debt is paid in full.

 

3. Understanding their credit history

While it won’t seem relevant to them now, your kids should understand how a good and bad credit history will impact on future borrowing applications and decisions. They can also begin to build a healthy credit history by carefully monitoring their money and ensuring they don’t go overdrawn at the bank. Once old enough to start using a credit card, they can continue to build a positive track record by using credit responsibly – they need to know that every credit move they make will affect their history.

 

4. Learn about interest

It’s one thing to teach your children about borrowing money to achieve their personal goals but it’s also key to help them understand the concept of interest. They need to realise that borrowing isn’t without its costs and that interest is how this service is paid for – and that it will increase over time as they take longer to pay off the full amount. It’s an impact on their debt and one they need to carefully understand. Teach your kids about these key aspects of credit and once they have to make their own borrowing or credit commitments in the future, whether it’s to pay for a car or a fun filled holiday, they’ll have the knowledge they need to make sound and secure financial decisions.

 

The information in this article is of a general nature and does not constitute as advice in relation to any investment or purchase. It has been produced without taking into consideration your personal financial circumstances, objectives or needs. Prior to making any decision you should conduct your own investigation and analysis of any benefits or costs associated with such. You should seek your own independent legal and financial advice.You should read the relevant Terms and Conditions or Product Disclosure Statement and our Financial Services Guide available on our website before applying for any of our financial products and services. Qudos Mutual Limited trading as Qudos Bank ABN 53 087 650 557, AFSL/Australian Credit Licence 238305.