COLORADO SPRINGS — Many families are staying home and spending a lot of time together during the COVID-19 pandemic, but have you talked to your kids about managing finances and credit? Experts tell News5 how having that conversation could help to set your kids up for financial success in the future.
What's the most memorable financial advice you remember from your childhood? Many kids might say they learned to take good care of their piggy bank. While that is important, chances are the change inside won't cover the big expenses kids will see in the first years of being a young adult. It's why experts say learning how to manage credit and debt now could help to avoid costly mistakes later on.
Understanding how to build credit, manage debt and avoid scams comes with experience. These items might not be a top priority for many kids, but experts warn financial decisions they'll make as young adults could open, or close a lot of doors.
"Good credit can make things easier for you in the future, whether it's securing loans, credit cards with better terms and rates. It might even help your ability to land a job or a desirable apartment," said Credit Card Insider Senior Credit Industry Analyst Nathan Grant.
While it's true kids can't even open their own bank account until they're 18, Grant says parents can use a prepaid card to teach money management well before their kids become adults.
"Many of those allow for monthly direct deposits. So, you could have their allowance loaded directly on their card, and that could, at an early age, give them a way to understand budgeting and using a card that has a limit on it to teach them better spending habits," said Grant.
With fraud and scam reports exploding across the U.S., the experts tracking these trends say young people are now often the prime targets.
"Most of our kids, studies show they spend about seven hours and 22 minutes a day on their phone," said Dr. J. Michael Skiba of CSU Global's Criminal Justice Program. "If you think about all the potential data points, it's almost infinite the number of places a hacker can actually extract information from."
Experts suggest running a credit check when your child is 16, providing time to fix problems before they become an adult.
Having age-appropriate talks about scam threats and how they work is an important pillar of building early financial literacy.
"It's not too early to start talking to your kids about finances in general and credit scores, but also how to protect your data and information," said Skiba.
As parents become more confident in their teen's financial responsibility, you may consider making them an authorized user on your credit card. Even if you're not ready to let them make purchases on your card, experts say as long as you're responsible, just making them an authorized user will help them build credit.
"You can add them as a user and not give them access. It will hopefully build their credit up right out of the gate," said Grant.
Here's your Rebound Rundown:
- Talking to kids about money management can set them up for success
- Use prepaid cards to help train them
- Be aware of scam tactics and what makes them vulnerable
- Run a credit check when they are 16 to make sure there aren't any problems
- When you're ready, consider adding them on to your credit card to build their credit
Financial experts warn the biggest mistake they're seeing young adults make right now is spending beyond their means and racking up massive amounts of debt right away.
You can find more advice and resources to boost your credit at creditcardinsider.com.