Teaching kids about Credit

Teaching kids about credit can be a very challenging topic. It appears our education system spends very little, or no time teaching our kids about credit. This leaves the task to the parents. What if the parents are not educated about credit, or don’t have the resources to educate their kids about credit? This leaves the credit education up to the kids themselves. In a lot of cases this would leave the kids to fail before succeeding, thus setting the children up to fail. Its unfortunate to put it in this term, but facts are facts. In my opinion, the education system should bring in credit counsellors to their classes, to educate the pupils about the general topic of credit. We all have realized that credit is a complicated topic and many factors cant help, or worsen credit. If we made the choice to educate children about credit, before they are 18, then we have done our jobs to set them up for success, thus helping to society, economy, and future interest rates. I believe it is important to assist our children in making wise money decisions, and credit certainly falls in that category. Since children are not taught credit in our education system here is a list of things we can teach our children at home, regardless of the individual parents situation.

  1. Educate the child on what credit actually is. Its best to let the child know that a credit card is not their money, and have them understand that credit needs to be paid back, sometimes over time.
  2. Teach the child how interest rate is calculated. It is my opinion that children should be given an example of how much a shirt can cost them, or how much a tank of gas actually costs over time.
  3. We should educate children on terms of credit. What does APR mean? How is APR calculated? What is R1 – R9?. What is I1- I9? What is a billing cycle? When does interest get calculated?
  4. How does credit get reported to the credit bureau?
  5. What is a credit bureau? What are the credit bureaus used in Canada?
  6. What is TDSR? (total debt service ratio)
  7. What is Credit Utilization?
  8. How to look out for errors in credit
  9. Protecting against credit card fraud
  10. What does NO PAYMENTS FOR 12 MONTHS actually mean?

These are just some items we can teach our children about. Credit is very large topic and will take time to educate. Credit is not something that gets “mastered”. Even the best credit analyst in the world cant “master” credit. I think its important to teach our children that “trial and error” is not the way to learn about credit. The more we can set up children for the future, the better the future will be.

In the upcoming posts, I will break down the above areas, and explain a little about both.

Just my 2 Cents

-M

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