Your Children and Credit

Educate Your Children about Money and Credit

Parents, start building your children’s credit early – and do it well. Build credit early for your children – even before college starts, if they plan to take out student loans. Sign over an account that they must pay on time each month. Get a credit card with a low limit, and a bank account that you help them manage monthly. Avoid opening several charge cards at once in their name – not only will they be hard to repay, but having new accounts when they have a short credit history will cause their credit rating to drop. Encourage them to get a part-time job.

“The Credit Card Act of 2009 sought to temper aggressive marketing of credit cards to students by restricting campus promotions and requiring students younger than 21 to have a co-signer, unless they have enough income to get their own card.” And banks are unwilling to offer credit education to their customers. “They do not tell us that no credit is as bad as poor credit. Banks and educational institutions certainly do not think it is their responsibility to conquer the critical task of teaching children about credit.”

One interactive tool that has seen positive results is a Family 401(k). Just as many companies match their employees’ contributions to 401(k) savings plans, parents can kick in a matching contribution to money their children save. For every dollar of their allowance they put away in the bank, you can match it in some way, some percentage that you can afford. This will give children a real incentive to save. Having their own savings account, and getting monthly statements from the bank, can also be a good way to teach them about interest and compounding.

As always, the task of educating our children ultimately falls on parents. Again, teach your children early about money, credit and how to manage both, which will help them foster good money habits and establish good credit, and in turn help get a good student loan rate. More importantly, establishing credit early will help ensure that they have a long (and good) credit history by the time they graduate from college, which will help them with all their important, large post-graduation expenses.

(excerpts and photo from WSJ)

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