5 Basic Credit Lessons to Teach Your Kids

Your parents may have prepared you as best they could for the financial realities of adulthood, or they could have left you to figure it all out for yourself. But if you were taught the basics of finance and credit before you left the nest, you may have encountered less of a learning curve than your clueless counterparts. No matter your level of understanding, you likely have to do some learning yourself.

But now, if you’re the parent, one of your priorities is to prepare your kids for adulthood. Just as you would teach your children to dress themselves, ride a bike or do their laundry, you may want to impart lessons about credit to them to help them become successful and financially independent.

Here are five credit lessons you may wish to impart.

1. It’s Important to Regularly Check Your Credit Reports & Credit Scores

Credit reports and credit scores may seem like abstract concepts to teach your children. But you can use simple metaphors. School-age children can understand the concepts of grades and report cards, and these concepts apply to credit. The work you put into your credit is reflected in your credit report and credit score, which “grade” your performance. These grades can then be used to help you get “rewarded,” like by getting the best rate on a credit card or a loan, like for a car or home. (You can check out your free credit report summary on Credit.com, which includes grades on how you’re doing in the five key areas that make up your scores.) This brings us to our next lesson …

2. Credit Affects Their Life

Once your child understands the concept of a credit report and credit score, you can demonstrate how credit has affected your lifestyle. Many of your possessions — your home, car or credit card, for instance — were obtained using credit, and are examples of the power of credit. Of course, credit is not just a way to get “things.” It’s a tool that can help provide shelter, comfort and freedom.

3. There Are 5 Main Influencers of Credit

As your kids get older and have a firmer grasp on these concepts, they may be able to better understand how they can make credit work for them. You can show them credit is determined by five main factors:

  • Payment history
  • Debt usage
  • Age of accounts
  • Types of accounts
  • Credit inquires

If you own credit cards, have loans and monitor your credit report, you have teachable moments built into your financial routine. When your children are old enough, you can involve them as you pay a bill or check your credit report, explaining the process as you go.

4. Mistakes Can Cost You

Mistakes can be valuable life lessons for young people. But when it comes to credit, mistakes can be costly and their effects can be long-lasting. One late payment can cause your credit score to drop dramatically. And negative items such as accounts in collections and judgments can stay on your report for at least seven years. To a young person, seven years can be a long time to have difficulty obtaining loans or credit cards. You can also show them how errors on your credit report can be fixed by using this guide.

5. Credit Cards Are Merely Tools

Credit cards are not a magic wand for reckless spending, but they are also not inherently risky items to be avoided. They are tools. They can be invaluable to build credit and financial independence, but they can also be damaging if wielded incorrectly.

It’s no secret that young people can have trouble with impulse control. But you may want to impart that credit cards can be used responsibly or irresponsibly. The results will depend on the user.

Image: Liderina

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The Rock Band That’s Helping Kids Learn About Money

rock_band_gooding

Most folks, even those in dire financial straits, probably wouldn’t get super excited about going to a concert that touts financial literacy, but that’s exactly what one band is doing — and doing successfully — and changing lives in the process.

The band, Gooding, is trying to make financial literacy exciting, especially for kids who may not have seen proper money modeling at home. The band’s front man and founder (who also goes by Gooding — just the one name, a la Madonna, Cher, Prince) came up with the idea several years ago that performing for students and talking about ways they can ensure a solid financial future could actually make a difference.

It all started with some conversations with locals while the band was out touring through small towns around the country.

Breaking The Cycle of Debt

“I had heard so many stories … intelligent, hard working people who just could not get out of this cycle with these same-day lenders, with predatory lending,” Gooding said during a recent phone interview. “Situations where I felt like there was no need for the confusing fine print they were having to try to interpret by themselves and signing off on loans that they just never had a shot at successfully paying back from the beginning.”

The debt stories were so widespread, particularly in the smaller towns, that it got him thinking about how he and the band might make a difference. He reflected back on his own teenage years, when his mom would let him and his friends play rock and roll all night, but they weren’t opening the bills, he didn’t know what a credit score was and he left high school knowing more about almost any subject than he did personal finance. He didn’t even know how to balance a checkbook.

“We just felt like, if the kids had some kind of level playing field, a lot of other things would improve,” he said.

It was when he met Rita Pouppirt that a plan to really spread the word came together. They had similar views and she started helping the band set up free shows at schools to spread the financial literacy message.

They started doing a lot of concerts at local schools, playing a set of music to get the kids fired up, and ending with a discussion about what it takes to ensure they have financial freedom in their futures.

Founding the Nonprofit Funding the Future

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Gooding onstage.
Photo courtesy of Gooding Music

“It just kept getting bigger and bigger, so she found some friends that helped us put the paperwork together,” for a 501(c)(3) to fund the effort, Gooding said. Thus was born Funding the Future, a nonprofit focused on educating students across the country on the importance of making smart decisions in order to reach their financial goals.

Roughly 30% to 40% of the band’s tour is dedicated to the Funding the Future presentations at schools, which is funded in part by Raymond James. And other bands are also getting involved.

The shows are a lot like those Gooding would play in a bar or theater or festival, though they start with a video clip of the band meeting all sorts of famous people. After that, though, it’s all the loud, crazy jumping around you’d expect from a rock concert.

“I do everything I can to just whip them into a frenzy. And then the speech is basically popping that balloon of the fame … I tell the kids, if you’ve got $1 in your pocket, you have more money than some of your heroes, so start from there. Start working on what you care about and don’t worry about all the hype you see about all these famous people.

“If I spoke first, we’d probably be in trouble, but the rock and roll let’s them listen a little bit, so we get a teachable moment.”

Gooding touches on a broad range of issues during the presentation, including:

  • Trusting your heart and following your passion
  • The importance of self-reliance
  • The impact of education and finding mentors
  • Financial literacy — pitfalls, plans of action, warnings against predatory lending, etc.
  • Slow and steady wins the race — not believing the hype of overnight success (they give examples of athletes, actors and actresses and music stars who are in severe financial stress)
  • Expenses rising to meet income (the façade of inheritance, lottery, record deals, pro-sports deals, etc., solving one’s long-term problems)
  • Lessons learned from a life in the music business and how these experiences extend to any field

“It’s unbelievable to me that … the deck is stacked against these kids the way it is,” he said. “And they don’t even have the most basic understanding of finance.”

Young people today have low credit scores, struggle with financial stability and often lack the funds to leave their parents’ homes. Top that with little financial education, mounting student loan debt levels and the fact that most people under 30 today make about the same amount of money their parents did in the 1980s, and it’s easy to see why today’s kids are skeptical about the future — and perhaps not prepared for it.

When the Message Gets Personal

He’s been moved to tears after some shows when he talks with the kids and they share with him the financial difficulties of their own families. One in particular sticks with him.

He met a student who had a tattoo across her entire arm that she’d put there as a reminder that she could make something of herself, because her mother had told her so many times she was worthless. (We won’t describe the tattoo’s message to protect the student’s privacy.)

“It just broke me down,” he said. “That really brings it all home how much these kids are fighting to find their own centers, their own selves and sense of purpose in this world.

“When you talk to a kid like that who is really trying to find anything to hold onto, to think it’s going to get better, to think there’s going to be a different life waiting for them down the road — I remember that feeling — and what I try to say to them is if you can figure out a way to embrace that and get up every morning and get some discipline and start pushing, you can succeed.”

More Money-Saving Reads:

Image: Courtesy of Gooding Music

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Are Americans Dumb With Their Money?

dumb with money

If you were to grade Americans on their ability to manage money, many of them, it seems, would earn Cs and Ds.

The National Financial Educators Council (NFEC) recently administered its National Financial Literacy Test, a 30-question quiz designed to measure 15- to 18-year-olds’ ability to earn, save and grow money, to people of all age groups, and none of the demographics aced it. Here’s a quick breakdown of the average scores for each age group:

  • 10- to 14-Year-Olds: 53.56% (679 Participants)
  • 15- to 18-Year-Olds: 60.35% (6,544 Participants)
  • 19- to 24-Year-Olds: 67.8% (1,191 Participants)
  • 25- to 35-Year-Olds: 71.99% (845 Participants)
  • 36- to 50-Year-Olds: 72.87% (882 Participants)
  • 50+: 76.81% (856 Participants)

NFEC tested more than 11,000 people from all 50 states. Sample questions include: “What is networking?”, “Which of the following financial products can help you lower your personal risk?” and “Why would I want to improve my credit score?” (You can see how you would score by taking the test here.)

Improving Your Own Financial Literacy   

NFEC’s test results aren’t the first statistics that suggest Americans are lagging on financial literacy. A Gallup poll from 2015 found that the U.S. ranked 14th in the world in financial literacy. Other past surveys have found many Americans know nothing about their employee benefits, are woefully unprepared for retirement and have serious knowledge gaps when it comes to credit scores. (You can see get a credit score primer here. You can also see where your credit currently stands by viewing your free credit report summary, updated each month, on Credit.com.)

While it’s certainly encouraging, if not all that surprising, to see that our money management knowledge gets better with age, it’s in Americans’ best interest to build a strong financial literacy foundation early on. Failing to do so could easily lead to major debt woes and damaged credit scores, which, in turn, could make it harder to achieve major financial milestones, like buying a home, paying off student loans, or, even, retiring when they’re eligible, down the line.

Fortunately, there are lots of online resources that can help you improve your financial literacy. Some government websites, including MyMoney.gov, offer good primers. And you can ask your college, university or local board of education if they offer any free financial literacy classes you might be able to take advantage of.

More Money-Saving Reads:

Image: iStock

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Why I’m Thankful I Had Credit Card Debt

Why Im Thankful I Had Credit Card Debt

What are you thankful for – family? Friends? Health? What about freedom or a great job? I too am thankful for all of those things. However, I also have something else I’m thankful for that might seem a little odd – credit card debt. Specifically, my credit card debt.

Why would I be thankful for something that brought me to the brink of bankruptcy? The answer is quite simple – it was being in credit card debt that brought me to where I am today financially. Before having debt, I knew little to nothing about managing money. I was financially illiterate to the core and was paying for that illiteracy.

We often think it’s only the “good” things we can be thankful for. In paying off debt, I learned even trials can lead to gratitude. Here are some glimmers of hope to pull out of the trial of debt.

It Taught Me About Myself

Much of my credit card debt came from mindless spending. With the average amount of credit card debt we carry as a culture, some of that is bound to come from mindless spending. Spending triggers often kick off that mindless spending.

Those spending triggers can range from anger to sadness to plain boredom. The result is buying stuff you have no business buying. I learned spending didn’t make me happy. I thought extra stuff would make me happy.

A clear mind shows that extra stuff is just stuff and will bring little to no lasting happiness. I learned what triggers drive me to spend money and have since found ways to channel my energy towards the long-term and not the short-term high of a purchase.

It Taught Me to Attach Value to Time

When I was spending mindlessly, I didn’t stop to think about the time needed to make a purchase possible. Why is this important? You need to be able to see what that purchase costs you in time.

I learned to view spending in terms of how many hours of work my purchases would cost me. This process allows you to see if it’s worth it to you to make said purchase. My family and I do this now as we decide what bills to cut so we can have maximum value for our money. In some instances, the value will be there to spend the money, but in many instances it won’t.

It Taught Me the Result of Poor Choices

In my instance, I had credit card debt due to poor choices. It didn’t matter if I had a bad day at work or was bored; I spent money I didn’t have. Those choices brought about less than desirable circumstances.

In the short-term, I couldn’t go out with friends when I wanted to. I couldn’t purchase things I needed as all my money was going towards debt repayment. In the long-term, I had to delay saving for retirement as all my extra money went to pay down debt. If you’re currently paying off debt, look at what it’s costing you now, and in the future, and use it to drive you never to be in that situation again.

It Taught Me That Money is a Tool

This is the biggest thing that came out of paying off debt. I learned that money is a tool. That tool can enslave you or you can make it work for you. The former is suffocating, the latter breeds freedom. I learned money, when used wisely, can do many good things for you.

The key, however, is to use the tool as it’s meant to be used. In specific terms, that means not financing your present at the expense of the future, but using money to provide for the present and future you want. It means creating a balance that brings financial health, not a future dependent on life support.

 

Credit card debt can be suffocating. It can also be a gateway to life changing lessons. If you’re currently paying off credit card debt, remember to be thankful for the lessons learned during trials as they can build a foundation for a bright future.

 

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