Growing up credit smart - Teaching your kids about money is a valuable lesson

How to ride a bicycle, how to read, how to pick-up their bedrooms - these are just a few of the things we teach our children. But one of the most important lessons that we can pass on to the next generation is too often neglected. Teaching children about money and credit helps them to build responsible spending behaviors that can last a lifetime. Follow these five tips for teaching your children healthy money habits.

1. Start Small - Young children can learn valuable money management lessons through their interaction and activities with parents. Use daily errand activities like going to the supermarket or bank to teach kids impromptu lessons about budgeting and money. Give your children toy money and encourage them to "play store". There are also several children's books that address money and budgeting issues. Reading and discussing books like The Money Tree and If you Made a Million with your kids can help them understand how to spend wisely.



2. Make Allowances - A weekly allowance is a good way to teach children about using budgeting and spending responsibly. Pick an amount that is reasonable and give it to them in small denominations, i.e.: instead of a $20 bill give them five $1 bills and three $5 bills. Encourage children to save a portion of their allowance each week by calculating how much they could save in a month or a year. Opening a savings account for older children will educate them about making deposits and withdrawals.



3. Wants vs. Needs - Explain the difference between wants and needs to children. A brand new video game system may seem like a need to a child, but it is not. Encouraging children to earn and save for something they really want is a smart way to teach healthy spending habits and delayed gratification. Help your child keep track of their savings with a chart or offer them some "piggy bank" incentives, i.e.: for every twenty dollars they save, you will add five more to the bounty.



4. Teaching Teens - Giving a teenager a prepaid credit card or access to a parent's card is fairly common these days. While this is a convenient way to introduce your teen to the world of credit, it can lead to some startling monthly bills. Teen spending makes up a great deal of the economy and if you are not careful, it can take a good portion of your salary as well. Set guidelines for their use of the card and explain how credit works. Sit down with your teen each month and go over the credit card bill and receipts to show them how fast their charges can add up.



5. College Days - College can be treacherous for students with credit cards. The pressure to spend on a limited income often causes college students to rack up thousands in debt while away at school. Teach your kids about responsible credit card use, late-payments fines and the dangers of debt before they go to college. If you are nervous about their overspending, make an agreement where you can check their balance online, find a pre-paid card or simply don't let them open an account until they are out of school and have a full-time job (they will thank you for it after they have graduated debt-free). If your student has a credit card, encourage them to order their credit reports, many don't realize the impact of their spending until they see their credit score drop first-hand.