Unsurprisingly, parents are often the most influential forces shaping children, especially their habits and spending attitudes about money. A recent Wells Fargo money study revealed that one out of three Americans shared that their parents had the biggest impact on their relationship with money. One of the most pivotal issues regarding money is the proper and prudent use of credit cards. “Credit cards can get a bad reputation, but when used intentionally, can be a great learning tool,” says Emily Irwin, head of Wells Fargo’s advice center.
To that point, here are four smart ways parents can model responsible credit card use for their children.
Demonstrate how the New Year marks a time to plan
The new year is an ideal time to make resolutions relating to intentionally tying money behaviors to family values. Use this time as a way to connect with your children and explain how credit cards can be useful, but they can also cause financial woes when misused. “With many families relying on automatic payments and mobile deposits, credit cards, digital wallets (including wearables), and online shopping, it’s easy to miss teachable moments with our kids unless we set it as a goal,” says Irwin. Use the first month or two of the year to explain your own goals for the year, and share how to take the path to get there.
➤ LEARN MORE:Should you co-sign a credit card for your kids?
Use cash for certain purchases
Using cash to pay for items and services when your children are watching can be a valuable money lesson. It’s showing them the concept of pay-as-you-go, and they can understand and watch money change hands instead of just swiping a credit card or paying for things on an app. “As kids are developing from concrete to abstract thinking, it may be more important to use cash on occasion,” Irwin says. Besides paying for small items with cash like coffee or a quick pizza lunch, consider using cash as a donation to an organization that is meaningful to your family, suggests Irwin. And, she adds, you may wish to have a policy of always tipping in cash – at the hairdresser or a restaurant, for example. “That way you open the conversation about not just paying the bill for goods or services, but also why you tip and how you calculate the amount,” she explains.
Discuss the consequences of impulse shopping
Using credit cards for shopping binges can influence your children’s buying habits, especially if you bring your kids with you on such sprees. They may think that this practice is a smart move. Such impulsive shopping behaviors can negatively influence young spenders.
Andrea Woroch, a money-saving expert, warns against this. “Don’t make impulse purchases in front of your children or give in to their every request when you’re out shopping,” she says. “Modeling the shopping behavior you want your child to adopt is crucial for them to learn how to manage money and credit card spending.”
A better approach could be to institute a 24-hour rule for thinking about expensive purchases. Irwin suggests opening a dialogue with kids and suggesting they “sleep on it” before an impulsive buy.
➤ LEARN MORE:Credit cards for teens: A parent’s comprehensive guide
Emphasize the importance of credit card payment policies
It is important to discuss sound credit card payment habits with your children, and how paying balances in full and on time can create a higher credit score. You can even include your children in your payment scheduling. “If you’re a family that keeps a master family calendar – analog or digital – a great way to build in the concept of the importance of on-time bill pay is to actually write ‘Pay Bills’ on certain days of the month alongside family activities such as baseball games, ballet, and swim team practice,” Irwin says. This exercise demonstrates smart credit card use that’s relatable to children. “Talk about why you schedule time to review your financial accounts and bills – fraud, scams, identify theft, and why it’s critical to pay bills by certain dates – prevent potential debt, avoid late fees and interest, foster a healthy credit score, and reduce stress,” she adds. “When it comes to developing positive credit card and money behaviors – repetition and consistency yield better results.”
