SourceMoney is often a difficult subject to broach within family settings. Particularly when children are involved, it can be tricky to know how much to tell them and how soon when it comes to the world of finances.
On the one hand, you don’t want to unduly confuse or unsettle them by bringing up new things to potentially worry about. However, having these conversations early will give teens the foundations needed to build a more financially secure future for themselves and their children.
In this post, we’ll highlight the importance of teaching your teens about credit, and provide some useful tips to help you understand what topics you should be discussing.
It will help them to manage debt
Especially as teens enter their student years and head off to college, it becomes increasingly important for them to have a solid understanding of credit and other financial matters. During these crucial years, it may be the first time your child has experienced any sort of debt, so ensuring they know how to handle this on a daily basis, and in the long-term, will help to protect both their financial and general wellbeing.
Heading to college armed with a better understanding of debt and credit will hopefully help your child to make more informed decisions around their spending and budgeting. If they struggle to deal with the responsibility of taking on a student loan, you may find that other major life events are delayed further down the road, such as purchasing a first home or car.
Gives them a sense of independence and responsibility
Understanding credit can give teens a huge sense of independence and responsibility, since it speaks to a life beyond relying on the bank of Mom and Dad. As children enter their 20s, they’re likely to want to start thinking about flying the nest and finding a home of their own.
However, this process will be made a whole lot more difficult if they’re entering into it blindly, without the knowledge or wherewithal to understand the financial implications. It’s a pivotal time in their lives, and providing them with all the tools they need will help them take the next step.
PhotoHow to get started on building your teen’s credit history
Once your teen has a better understanding of credit and credit ratings, they will be able to start building their own score. It’s important that you’re able to steer them in the right direction when they start out building credit, to ensure they’re doing the right things that will set them up for financial success in the future. If you’re thinking about how to get started on building your teen’s credit history, there are a few things you can do.
Firstly, you can add your teen as an authorised user on one of your credit cards. This will allow them to build up their own credit history while still being under your supervision. You can also help them open a secured credit card, which is backed by a deposit that the cardholder makes upfront. These cards are a great way for teens to build credit without running the risk of getting into debt. By taking these steps, you can help your teen get started on the path to good credit.
It’s also important to inform them about the factors that can negatively affect their score, such as credit utilization and hard credit checks. All of these things will help them build up a healthy relationship with money now, and in the future.
