When I was a kid my parents used checks to pay for things (yup, that might give you a hint about my age). I would see them writing checks all the time, which meant writing some numbers on a piece of paper that would then allow you to buy things. Any numbers. In my mind, of course.

I remember saying to my dad that he could buy anything he wanted, because he had checks. He could just write whatever amount and pay for his purchases. I really did not understand that the money had to actually come out of his invisible bank account. I also did not understand that his salary was a bunch of numbers deposited monthly into that account.

Children are so funny, and it’s funny looking back and remember the things I used to think and say. It all made perfect sense in my head, but of course my dad laughed at it and tried to explain that a check had to have “funds”. I pointed at the check and said that it did have a “fund”, which is a word that can be used for “bottom” or “back” in Portuguese. I just could not understand the whole concept.

This is something that parents often forget. Children think literally. They are still developing their ability to understand abstract concepts. They might see you spending money completely unaware of where it came from and how it actually works.

These days (most) people don’t use checks anymore. But they do use credit cards. And worse than checks, credit cards allow you to borrow money for your purchases at a high interest rate. So dangerous when not used wisely.

Chances are children see their parents using their credit cards and think just like I did. They might think that with that piece of plastic one can purchase just anything since all you have to do is type in some numbers.

Here I share some ideas on how to begin teaching your young children about credit cards. I am not suggesting teaching about interest rates and consumer debt just yet. This will be an entirely different post, for older children. These ideas are to help them build basic concepts and lay the foundation for the future.

Your children probably see you going to work every day. They probably don’t understand exactly what “work” is. I certainly didn’t. But they know that you go out to do something and get some money in return.

Explain to them what you do for work, and how you get paid for it. You can explain in “child speak”, and talk about how you get a certain amount of money for the work you do. Try not to foster as scarcity mindset. Instead explain that people can earn more or less throughout their lives, and that money needs to be well managed.

Your children have probably heard the word “bank” but that does not mean that they understand what a bank is. Do not assume that your children already know something only because it is obvious to you.

Explain to your children that the money you earn is not paid to you in cash. It is sent to a place where it is kept safe. This place is called a “bank”.

Explain to your children that the money you earn is sent to the bank, but that you can use it anytime you want. You have a bank card and every time you use it, you are using actually using the money that the bank is keeping safe for you.

If you have $100 in the bank, every time you use your card you are actually using that $100. Don’t worry about teaching the concept of debt or the differences between credit and debt card yet. Remember, we are just teaching the foundation of finances. And also, even you borrow money on your credit card, the payments will have to come out of your salary anyway.

Young children might not be able to understand the abstract concept of borrowing money from an entity. But they are not too young to build the concept of lending and borrowing. Building this concept will lay the foundation for learning about credit in a not so distant future.

The simple truth about credit cards (and that many people seem to forget) is that you have to pay it back. You can help your child build this understanding by teaching them that it is okay to borrow toys from friends and siblings, but it’s not okay to keep them. Everything that we borrow must be returned.

Some of these ideas might sound intuitive, but remember, it is not intuitive for kids. While children are smart and pick up on things quickly, they also need to be explicitly taught.

How are you teaching your children about credit cards? I would love to know your thoughts in the comments below.

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