The Piggy Bank: Debit v. Credit
How do you pay for gas? Your card. How do you pay for groceries? Your card. What do you give the restaurant server at the end of your meal? Your card. Likely, your children see you swiping your card more than paying cash for the items you purchase. But do they understand how it works? The concept of debit and credit is something that our children need to understand because it’s not likely we are reverting to using just cash anytime soon!
This is a difficult concept to grasp for younger ones but Tracie at Penny Pinchin’ Mom suggests that the conversation needs to be had before your child gets a checking account. But how do you go about explaining what seems like such an adult topic? Tracie gives us a bit of help by communicating just the basics. She goes on to easily explain debit, she said, “They need to know using a debit card means that the money will instantly be deducted from their checking account. It means that they have to know exactly how much money they have in the bank before they shop.” Also, it is important to remind your child that an ATM works the same way, that money comes out of your account when you get the cash.
Regarding the credit side of things, our kids need to know that this isn’t just free money but instead needs to be viewed as a short-term loan that must be paid off, otherwise there will be consequences. Tracie gave us a list of things to teach our kiddos:
- Credit cards are not free money. They are only delaying the payment.
- Never charge anything you cannot afford to pay back right now. Help your kids learn that they should never charge anything greater than what they have in the bank at this moment. They should not charge anything with the expectation of future income.
- When you do not pay them off, you will actually pay more money. Try a practical thought with this. Use an example of something such as $2 for a bag of candy. Ask them if they would rather pay $2 for the candy now or hold onto their money and then pay $4 for the candy in a few months. This can be a great way to help them understand why they need to never make just minimum payments, but always pay it in full.
- Credit cards can increase your credit score. Kids need to know that a credit score is how a bank will know if you are good with money. They will need a score if they ever plan to take out a vehicle loan or a home mortgage. By using credit cards the right way, you are proving you are good with your money.