Financial
Financial Planning and Your Kids: Birds, Bees…Credit?
By Michelle Thornhill
T
urning 18 opens up a
world of opportunity
for your children.
How well informed they are
about new opportunities can
make all the difference in
their ability to make smart
decisions. For many teens,
opening their first credit
card account is exciting.
The freedom of not relying
on Mom and Dad for money
is alluring. However, chil-
dren generally lack the fore-
sight required to understand
the long-term impact of
having poor credit.
As parents, we are
accountable for educating
our children about using and
managing credit long before
they have to make credit
decisions. This is why it’s so
important that credit and
financial management be a
part of the many life lessons
you pass on to your chil-
dren.
I’ve discovered with my
own sons (ages 6 and 8) that
kids are exposed to credit
long before they even
understand the concept.
Recently, we were shopping
and both of my sons, almost
in unison, asked, “Mom,
can you buy me this toy?” I
immediately
responded,
“Do you have the money to
buy this toy?” To my sur-
prise they said, “Yes, but not
with us – can we pay you
back later?”
I immediately realized
this was a teaching moment
because my sons had a basic
understanding of credit in
terms of “buy now and pay
later.” However, I wanted to
make sure they fully under-
stood the implications. This
inspired me to continue the
lesson at home where we
could discuss things like
interest and debt in a way
they could understand.
There are a number of
ways to begin teaching your
kids about credit at any age.
The first step is being open
to talking about money and
then introducing them to
tools and resources that will
help them understand basic
to more-complex financial
management topics. Here
are a few tips to get started:
Define credit: I’ve found
that using a dictionary is a
great way to teach younger
children new things. This
way they get a basic under-
standing of the term (I also
ask them: how do you spell
the word; is it a noun or
verb; can you use it in a sen-
tence). Online tools are also
useful in providing simple
and concise information on
credit.
Explain credit: Discuss
what credit is used for (like
auto and home loans and
credit cards) and explain
exactly how it works. Les-
sons on interest rates can
help children understand the
ramifications of the “buy
now, pay later” concept.
Outline the benefits of using
credit wisely, and the pit-
falls of mismanaging credit.
Be direct about how
credit impacts many
areas of your life:
employment, rent-
ing an apartment,
or buying a home
or a car. Ensure that
they clearly under-
stand the extent to
which bad credit
can impact their
lives.
Provide exam-
ples: Be prepared
for your children to
ask whether you
use credit, and be
open to candidly
sharing your expe-
riences. Depending
on your child’s age,
you can assess how
much detail is
appropriate. For
instance, you might
want to use a credit card
statement as an example if
you’re discussing credit
with a younger child. How-
ever, children
in high school
could benefit
from you shar-
ing your family
budget and dis-
cussing more
complex credit
products like
car loans and
mortgages.
Discuss
money management: Budg-
eting is an essential part of
good credit management.
Teaching your children how
t o
track and monitor spending
will help them to understand
Children in high school could
benefit from you sharing your
family budget and discussing
more complex credit products
like car loans and mortgages
the importance of not
spending more than what
they earn – which can lead
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to the misuse of credit and
ultimately credit dependen-
cy. This is another oppor-
tunity to provide
realistic examples
by sharing your fam-
ily budget. In gener-
al, children should
have an idea about
household expenses
so they can adopt
realistic attitudes
and
behaviors
regarding credit and
financial manage-
ment.
Teen
accounts:
Another way to help
older children learn
good money man-
agement skills is to
open a checking
account with a debit
card.
This way
teenagers learn first-
hand, while they are
still under your guidance,
how to track expenses and
avoid spending more than
they have. They should
become familiar with online
tools
to
monitor
spending,
and also get
into
the
habit
of
manually
tracking
expenses.
Having
a
checking
account is a
big responsibility, but it will
help you in working with
your children to make good
financial decisions before
leave home and are exposed
to credit.
Children shouldn’t be
frightened by credit, but
they should be well
informed. Be open to hav-
ing conversations about
finances, and make credit
management a part of the
discussion. Need help doing
it? Handsonbanking.org is a
free, interactive tool that
can help you and your child
learn more about using and
managing credit. Also, visit
Wells Fargo’s Smarter
Credit center at wellsfar-
go.com/smarter_credit for
free tools and information
on establishing, managing
and improving credit. Help
protect the financial future
of your children!
Michelle Thornhill is sen-
ior vice president, African
American Segment, Wells
Fargo & Company. Visit
www.wellsfargo.com for
more information.
This article has been pre-
pared for informational pur-
poses only. The accuracy
and completeness of this
information is not guaran-
teed and is subject to
change. Since each individ-
ual’s financial situation is
unique, you need to review
your financial objectives to
determine which approach-
es might work best for you.
© 2012 Wells Fargo Bank,
N.A. All rights reserved.