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How to teach kids about money and credit at any age
The other day I experienced my first toddler tantrum. We were at Toys R Us, getting a birthday present for one of my daughter's friends, and she threw a fit when I said she couldn't have a "Toy Story" figure. We watch the movie over and over and over again, so naturally she has all the toys -- from Woody and Buzz to Jessie and the Potato Heads.
Here's how it went down: Maggie took the toy off the shelf and when it came time for us to leave, I told her we had to give it back since she has it at home already. When I was finally able to pry it from her tiny hands, she screamed and threw herself onto the floor.
Even though every parent has been through this, it was still embarrassing and it got me thinking: How soon can you start talking to kids about money? Maggie has a piggy bank and loves putting change in, but that's about it.
According to Jeff Hindenach, director of content at NextAdvisor.com, a site that analyzes and explains online services, you can start as young as 3. Here's an age-by-age guide to teaching your kids about money, saving and credit.
Ages 3-6: This is the age that kids start to ask questions, said Hindenach. "If they ask what a credit card is, or why Mommy and Daddy are paying with a card, a good response is, 'Mommy can use this card now and in a few days I will get a piece of paper in the mail telling me how much money I owe.’ As long as they understand that eventually you have to pay with actual money when using a credit card."
Ages 7-12: This is a good age to sit down with your children and show them your credit card bill and explain what it means. You can also take it a step further and show them how it works, he said. "If they want to buy something, give them the credit card to use, explaining that they will have to use their allowance money to pay it back when the bill comes. If they already spent their allowance when the bill comes, then add 25 cents to the total they owe, which can teach them about interest and paying the credit card bill on time."
It's also time to set up a savings account for your kids, suggests Hindenach. "Have them deposit a portion of their allowance into a savings account, and make sure to show them the extra money they are making from the interest, even if it is only a few cents," he said. Any extra amount of money at that age is a big deal, and this will demonstrate the benefits of saving your money.
Ages 13-17: Now it's time to add your children to your credit card account. "By adding them, you are able to monitor their spending, all while they are getting a head start on building a solid credit portfolio," he said. "Add them with a low limit so they can’t run up a large bill, and it’s important to sit down with them every month to go over the bill so they can see their spending habits. Keep in mind that you are putting a lot of trust in your child because if they end up charging a huge amount on your credit cards, it will not only affect their credit score, but yours as well."
Age 18 and up: Time for your child to get his or her own credit card. "You can still monitor their spending before they go off to college, or cosign on the card, which will make it easier to monitor their spending habits," said Hindenach. "This will also help them establish their own credit, which will help them later when they try to rent an apartment, get a car loan or even their first mortgage."