How to Teach Your Kids About Responsible Credit Card Use

Teaching your kids about money can be hard. Here are some tips to help them use credit cards responsibly.

As a parent, you probably know that teaching your children about money is important. After all, you want your kids to be financially responsible so they don't end up drowning in debt or borrowing cash from you all the time after they've finally left home. 

There are lots of different financial lessons to teach your offspring, but one of the most important is about how to use a credit card responsibly.

Credit cards can be a helpful tool that assist your children in building credit -- but can also lead to disaster if your children don't learn how to use them the right way. To help ensure credit card debt doesn't become a financial catastrophe for your kids, follow these four tips to teach them to use credit cards like responsible adults. 

1. Lead by example 

One of the best ways to show your kids how to use credit cards responsibly is to make them aware of the way that you personally use credit and all the lessons you've learned. And you can actually lead by example, whether you've been smart about your own credit card use or whether you've gotten into debt trouble yourself.

If you are working on paying off credit card debt and your kids are old enough, let them in on the process. Show them how some of the payments you're making every month go towards interest, making it take longer to pay back what you owe. And fill them in on some of the sacrifices you may have to make to pay back debt on schedule.

If you pay $50 per month in interest on your cards, explain that for the price you're paying for your debt, you could have had a nice meal out instead. This is a good way to make them understand the consequences of having to pay interest.

If you don't carry a balance and you use your cards to earn rewards, explain why you've made this choice -- and show them the perks you get from the card such as a free airfare for your family trip. Be sure to emphasize how paying interest would negate the value of these rewards and explain that by avoiding carrying a balance, you can make the system work for you.

2. Show your kids how interest works

Understanding the cost of interest can be really hard. But if your kids are a little older, you can explain it to them -- and even demonstrate with a lesson. 

If your older son or daughter wants an advance on his or her allowance, offer it -- but with interest. If you advance $10, let them know that next week, they'll have to pay you back $11. When they see how their future funds diminish because they've borrowed, this drives home the point that carrying a credit card balance comes at a big cost. 

If you don't do allowances or don't want them to learn the hard way, you can still have a discussion and provide some examples of just how interest eats away at future funds that haven't even been earned yet. 

3. Stress the importance of saving for emergencies

For many people it is not irresponsible spending, but unexpected expenses that get them into credit card debt. Stress to your kids the importance of saving for a rainy day and encourage smart saving habits up front.

And if you tap into your emergency fund because of an unexpected expense, talk with your older kids about the decision. Explain how the unexpected car repairs would've had to go on a credit card if you hadn't been prepared. Sit down and do the math with them so they can see how much extra it would've cost to fix your vehicle if you'd been forced to charge it and pay off the balance over time.

4. Explain how credit card use can affect credit scores

Kids also need to know that the decisions they make can have a long-term impact on their credit score. 

You can explain this in the context of report cards -- just as the grades they earn now shape their future, so their creditors will also be giving them a grade that follows them for many years. 

Help your kids avoid costly credit card mistakes

Talking to your children about credit cards throughout their lives can help them to make responsible decisions when they get their own first card. Hopefully, if you teach the right lessons, your son or daughter will never end up in credit card debt and will be able to use cards to earn rewards without enriching creditors and tying up their hard-earned cash on interest payments.