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How to Teach Kids about Credit

teach kids credit

Teaching kids about credit is crucial to their financial education. An excellent credit score can save you hundreds of thousands of dollars. Good credit will help keep lower interest rates with mortgages, student loans, and car loans.

Typically credit is a lesson best learned when they are teenagers. That’s when they may start to apply for credit cards for themselves. However, before we get to the teens, let’s cover a few credit thoughts for younger kids.

Credit for Tweens

My kids are now eight and ten years old. They’ve had a credit card to build a credit history for several years. They don’t know about it, but each is an authorized user on my Amazon Prime credit card. Sometimes credit card companies need kids to be a minimum age, but I didn’t run into this problem with the Amazon Prime card. I keep the physical cards in a desk drawer. Perhaps I should use them to make sure they are building credit. Maybe I should even look at my kids’ credit reports. There are some horror stories about identity theft of kids’ information. At this point, I’m just trying to get them a headstart. I’m probably the weird parent who is nutty enough to think of this stuff when they are so young.

Secondly, I have recently gotten them FamZoo debit cards. These will get them used to using a card instead of cash. I’ll post a FamZoo review soon, but I want to learn more about how it works. I explained the difference between debit vs. credit cards. The FamZoo debit card seems like a credit card if you are a kid, though. It’s physically the same thing. Perhaps more importantly, I like the FamZoo solution because it automates giving an allowance and kids can start making money mistakes. Too often, kids think that money is “locked” in a bank.

Credit for Teens

Young adults in high school should start using their first credit card. Don’t let their first credit card experience be in college. Teaching kids good money habits are impossible when they are on their own. They’ll be swamped in college, and it will be tough to avoid late payments. You’ll want a couple of years to review credit card bills together and ensure they are paid in full each month to avoid fees.

One way to get kids to move from a debit card to a credit card is by introducing them to rewards cards. When I was a teen, I got interested in credit cards because I could earn points on Sony stuff. If credit cards didn’t offer me generous reward perks, I’d probably just use a debit card.

Credit card companies probably won’t give your kids a very high credit limit – lenders don’t want to take a big risk. That’s what you want – teens shouldn’t be making many purchases. Building credit can be done slowly.

Parents should explain the risks of credit. It’s not just about the late fees but how compound interest works against you. Before you teach kids about credit, they should be taught compound interest. When teaching them the risks, give them examples of how 15% interest grows over time. You might want first to show off how great earning 15% interest would be. We’ve all seen charts showing how 7-8% interest grows over many years. Chances are that seeing 15% grow will get them excited. Then you can pull the rug out from under them and say that they’ll be PAYING all that money for nothing if they don’t pay off their card every month. Maybe they’ll want to become a loan shark.

Final Thoughts

When parents think about financial literacy, they rarely think about teaching kids credit. Instead, they focus on saving money. Saving money is very important, but there’s a lot more for kids to learn to round out their financial education. Take some time to give your kids an understanding of how credit works.

Ten Ways to Make Your Kid a Millionaire!

Make Your Kid A Millionaire

Most of the articles at Kid Wealth are designed to make your kid a millionaire. However, here are ten specific ideas. One of the significant advantages of writing for kids is that they’ve got time and moldability. It’s harder for adults who have responsibilities, less time, and are more set in their ways.

1. Learn and Use Compound Interest

Regular readers know that teaching compound interest was going to come first. In particular, a kid Roth IRA can compound for five or six decades and be withdrawn tax-free.

If you don’t want to wait several decades, there are some ways to speed up the process.

2. Choose a High Paying Career

I love teachers. Unfortunately, their pay very much compared to architects and engineers. Some studies show that engineers have lifetime earnings of $4 million, while teachers are half that.

When you make more, you can save more and invest more.

3. Avoid Debt

Debt is compound interest working against you. You can’t save and invest while paying off a mountain of debt.

Not all debt is bad. Some debt, such as starter homes or state school college, can pay off down the line. Be very cautious about six-figure student loan debt – make sure it’s a top-earning career like a doctor or lawyer.

Avoid McMansions.

4. Limit Your Biggest Expenses

Why avoid McMansions?

Housing and transportation typically combine for half of people’s expenses. Big houses lead to more furniture, have higher property taxes, and require more energy to heat and cool. There are more maintenance costs.

McMansions also typically cost more money. That means taking out a bigger mortgage and more debt. A smarter money move would be to buy a tiny house and invest the savings. That may be a little extreme, but there are many types of house hacking, from getting roommates to live-in house flipping.

Buying an older used car without all the bells and whistles is also intelligent.

Most kids don’t need to worry about big expenses until they are legally adults, but it’s wise to build this foundation at a young age. I know many young adults who get their first job and spend too much on a first house. Similarly, many kids spend too much on a car when they get that first paycheck.

5. Maximize Assets and Limit Liabilities

Kids should learn the difference between assets and liabilities. For me, this was like flipping a switch in my brain. I stopped buying a lot of “stuff” unless it was shares of stock.

If you had $400 when Apple released the first iPod, you could have bought an iPod that would most likely be in a landfill – or you could have bought Apple stock that would be worth nearly $180,000 today.

Of course, no one knew that Apple would be the fantastic success story it is today, but it’s a strong example. Kids may not know what an iPod is, but this is an excellent chance to give them a quick history lesson.

6. Start a Business

Get kids motivated to start a business. Once they start thinking about how businesses work, they’re more likely to explore side hustles.

7. Increase Social Capital

I have helped a few friends find jobs, and I’ve had a few friends help me find employment. Some jobs are paid well, and we’ve all been happy with the arrangement. In fact, I’ve almost always been hired through word of mouth.

So teaching kids how to network can certainly pay off.

8. Learn More by Getting a Book

Here’s a list of kids money books. I’ve written several reviews to help you decide which book is best for you.

Of course, you could also get the book, Make Your Kid a Millionaire. I haven’t read it, so I can’t recommend it.

9. Learn More by Watching a Video

Looking for more ideas on how to make your kid a millionaire? Check out this video:

10. Be Lucky

Let’s end on a fun one. There will always be stories about someone who made it big through some quirk. Maybe they won a lottery. Perhaps they created a YouTube that went viral. Okay, that takes much more than luck, but luck is involved.

There’s a famous quote: “Luck is the residue of design.” All the above items are part of a design. When you have a good plan, good luck is likely to follow you.

The most likely way to make your kid a millionaire is a combination of the above. Maybe your kid isn’t getting a full scholarship to Harvard Medical School. Perhaps your kid is better suited for live-in house flipping. Since you are reading this site, I know you can set your kid up with investing and compound interest at an early age.

Teach Kids Money and Math with Monopoly

Is Monopoly useful to teach kids about money? Yes! However, I found that money is a secondary skill.

Last week, for Family Board Game Day we played Monopoly. My wife had found the Nintendo version in a yard sale for $1. (The game was in perfect condition, except that it didn’t have the instructions. They were easy enough to find online.) Instead of Boardwalk and Park Place, we worked with Mario and Luigi. It’s a classic rebranding that Hasbro has done thousands of times with Monopoly. Since my kids love Nintendo, the Monopoly version was doubly appealing to them.

At ages 8 and 9, they are the perfect age for Monopoly (Official suggestion 8+). We had played Monopoly Junior with them when they were 5 and 6, but I never liked it. Doing all the money transactions electronically didn’t feel like Monopoly. I’m much happier playing the real thing now.

monopoly teach kids money
monopoly teach kids money

Monopoly is More about Math than Money

Everyone thinks of Monopoly as a money game. It is, but I was blown away by all the math that we were doing. I’ve been using a credit card for so long that I don’t do a lot of cash transactions. We were doing all sorts of math to make change. For example, often when I had to pay a rent of $14, I’d give a $20 and my kids would have to give me $6 back. One time, I paid $102 for a $52 rent. The kid knew that I did it so that I would get a $50 bill back.

As we played longer, the math became more complex. Instead of dealing with rents under $30, the houses and hotels had us doing math with hundreds of dollars. That’s great place value practice especially now that the kids are out of school for the summer.

What About Monopoly’s Money Lessons?

It was just the kids’ first game of Monopoly. They played it very cautiously and saved their money until they landed on the premium properties. As a result, my wife and I were able to gobble up whatever properties we landed on. We had the unfair advantage of years of experience. I also had an extraordinary amount of luck the whole game.

Once most of the properties were owned, we started trading. This is where younger kids can learn the art of negotiation. My youngest son traded two of the greens for my Luigi (Park Place) to complement his Mario (Boardwalk). After the game, I explained that having three properties for other people to land on is better than two. Getting back to math for a second, this conversation dipping our toes into probability.

We didn’t get into real estate discussions like the landlord, renter relationship. We did cover how to mortgage the properties in the context of the game. However, we didn’t get into the common use of how a mortgage works because you can’t get a 30-year fixed to buy Marvin Gardens.

From a money perspective, there was still a lot going on. We were all making change all game long. We were buying assets and even selling them to other players. One of the things that’s great about money games is that it is a fun way for young children to get a basic financial education.

Final Thoughts on the Monopoly Game

For this age group, it’s hard to beat Monopoly. The worst part of the game is that it takes a very long time to play. I’ve been a little more focused on my kids’ math skills than their money management skills, but Monopoly gives us both at once. Even if you can’t find it at a yard sale for a dollar, it is still one of the best purchases you can make. You can buy Monopoly on Amazon here. I suggest teaming it with the Game of Life that covers more real-world situations such as having a career and earning a salary.

For more ideas, visit our list of best money games.

Win a Free Teen Entrepreneur Course ($197 Value)

The Simple Startup

To celebrate six months of Kid Wealth, I’m giving away a course to teach your tween/teen how to start a business. This isn’t just any course. It’s by Rob Phelan of The Simple Startup. I’ve mentioned Rob a few times on this website. He’s the author of M is For Money and he’s the creator of the high school curriculum for The Choose Fi Foundation.

He’s a high school personal finance teacher and a Certified Financial Education Instructor by NCFE. Anyone can create a course, but very few people can say they’ve helped kids launch dozens and dozens of income-producing businesses.

If your kid has ever said, “I want that!” but didn’t have the money to buy it, this course is for them. The Simple Startup comes in two flavors. There’s a self-guided course. Then there’s the Summer Group Challenge. The Summer Group Challenge is a 6-week interactive course. It has live webinars twice a week – a great way to keep kids motivated and accountable. It also ensures that if they get stuck, they’ll have a hand. The Summer Group Challenge is normally $197, but one Kid Wealth reader will win one for free.

By the way, your odds of winning are very good since Kid Wealth is new. Also, everyone who enters will receive a consolation prize!

Enter with the widget below or click here

Welcome to Kid Wealth

Welcome to Kid Wealth

Welcome to Kid Wealth, where kids (and their parents) learn to take control of their money.

Kid Wealth is for both parents and kids. Initially, I’ll be focusing more on parents. That’s my most recent experience. I’ve got 35 years of rust gathered on my kid experience. Don’t worry if you are a kid reading this. I’m going to need your perspective to make this work. It’s going to take a real team effort.

For now, I’ve got a message for each of you. Feel free to spy on each other’s messages, we don’t need to have any secrets here.

Kid Wealth for Parents

We all want our kids to have a better life than we had, right? One of the best ways to ensure that is to have enough money.

I know what you are thinking, “Money doesn’t buy happiness. I don’t want my kid thinking that it does.” I don’t disagree. That’s why this website is called “Kid Wealth.” Wealth, by many people’s definitions, can extend beyond money itself.

Besides, even though money may not buy happiness, it can help you avoid the stress that is associated with unhappiness.

Kid Wealth for Kids

You’ve got the more difficult job here. It’s your money and your hard work that went into making it. Parents have it easy, they only have to talk about money. Talk is cheap, right? So while this may seem like a lot of learning and a lot of doing, I want you to note one very important thing.

Mastering money at a young age is much, much than when you are older. You’ve got much more time for compound interest* to help your investments grow into millions of dollars. You’ll be amazed at how much money you can make without doing any work at all.

Doesn’t that sound like something worth learning and working for?

Getting Started at Kid Wealth

The very best article to get started is: How to Teach Your Kids About Money. You may also want to read more about Kid Wealth. We offer no products or services, and show no ads – only information to help you and your kids make the most of their money.

Next, you may want to join our mailing list or follow Kid Wealth on social media. There are forms and links in the right sidebar for that.

Finally, you might be interested in a couple more articles: how to give your child an allowance and the best book to teach kids about money.

* If you don’t know what compound interest is, don’t worry about it. We’ll get to it soon.