Being well versed in life’s most important personal finance topics is essential for any well-adjusted adult. Unfortunately, however, many learn through personal experience rather than structured education. Outside of the classroom, however, parents can set kids and teenagers up for success when they prioritize teaching them about personal finance - and it’s never too early to start learning.
In the U.S. today, financial literacy education is becoming more common, as its inclusion in state curriculum is being legislated into schools across all 50 states. 17 states currently require the completion of a financial literacy course just to graduate high school. Many states merely require courses to be offered by schools and left up to the student to enroll.
Up until now, however, the responsibility of teaching children healthy personal finance habits fell solely on their parents. Even still, personal finance can be very individualized for each family. So how are parents taking the lead in their children’s financial education?
To get a sense of how modern parents approach the topic of money as it relates to their children, specifically around credit cards, the FinanceBuzz team launched a financial literacy survey of 1,000 U.S. parents to find out what they think about teaching kids about building good credit habits.
Financial literacy in schools: Parents views
As mentioned, many states’ schools are now requiring a successfully completed financial literacy course to graduate high school. These states include:- Alabama
- Florida
- Georgia
- Iowa
- Kansas
- Michigan
- Mississippi
- Missouri
- Nebraska
- New Hampshire
- North Carolina
- Ohio
- Rhode Island
- South Carolina
- Tennessee
- Utah
- Virginia
All of these legislative efforts have only been implemented relatively recently, though. The majority of parents with children aged 15-18, 65%, agree their schools have done a lackluster job setting their kids up for financial success.
Parents who have taken on the responsibility of their family’s financial education all have their own preferences as far as the most effective methods. The vast majority (69%) agree budgeting or spending tracking apps are the most effective method for teaching kids how to manage their money. Other popular tried-and-true methods include a personal checking or savings account, financial literacy games, and a regular allowance.
Credit cards and debit cards were both options for parents to start teaching their kids about money. There is a bit of discrepancy among parents between the two about which is appropriate for a child to have access to. 67% agreed a kid-friendly debit card such as a Greenlight or GoHenry card was an effective teaching tool. On the other hand, only 55% agreed adding a child as an authorized user on a credit card is effective.
When should kids get their first credit card?
Most major credit cards won’t allow anyone under the age of 18 to become a cardholder. There is one popular workaround many Americans have been implementing to help build their children’s credit. While a minor may not be the sole user on a credit card, parents are able to add a child as an authorized user to their existing credit cards. With close monitoring and clear boundaries on when it's appropriate to use a credit card, this method can help young ones start to build credit under the supervision of their parents.According to FinanceBuzz’s respondents, though, making a child an authorized user of a parent’s credit card is considered one of the least effective methods to teach their children financial literacy. Less than 2 in 5 parents have made their child an authorized user.
Despite a significant consensus this isn’t a very effective method, the parents surveyed said that 13 was an appropriate age to make a child an authorized user on an existing card. 15% agreed as young as 5 to 10 years old was appropriate.
The reasons parents give children credit cards
Many may already be wondering, why would a child or teenager need a credit card? Nearly 40% of parents gave their child a credit card so they could buy themselves meals when they weren’t with the rest of the family.Thirty-eight percent of parents who have given their child a credit card say they did so to allow that child to buy themselves meals when away from the rest of the family. Other than buying themselves food, only one other accepted use was agreed upon by at least 30% of parents. Their child is allowed to use their credit card to pay for any expenses related to their extracurricular activities such as after school sports and clubs.
Discussing money matters with children
Despite having a specified list of approved uses, any parent knows kids don’t always follow the rules in place. Nearly half (46%) have caught their child using their credit card in a way they were not supposed to. This just goes to show how important it is to make the rules surrounding credit card use very clear.A clear set of rules about appropriate use are certainly important, but the conversation doesn’t end there. Discussing spending habits and responsible cardholder behavior should be a revolving conversation. It seems, though, even parents with children who may not have their own credit card yet are still prioritizing these conversations with their children.
Nearly 60% of parents with children ages 5 to 7 saying they are already having these kinds of chats with their young ones. The percentage of parents who have regular money talks only increased as their children’s age increased. Parents seem to put a greater emphasis on financial literacy as their children near adulthood, with four out of every five parents with children aged 15 to 17 years old.
The bottom line
Starting a family is a big responsibility, and so is ensuring their future financial stability. While it may seem daunting at first, there are plenty of resources for families at all stages of their financial literacy journeys. Greener cardholders can start to build their credit profile with one of the many starter cards which require little to no credit to apply. Likewise, parents can apply for and authorize their children to use a 0% APR credit card so they can save on interest while building better money habits.For parents wanting to use budgeting apps with their kids, taking the time to create a budget together can be a great learning and bonding experience. There are plenty of easy to use apps such as Mint and YNAB. For the parents wanting to make a checking or savings account for their child, allowing them to follow along when money gets moved and how much money is going into these accounts is a great way to teach them how to stay on top of their accounts.
Parents may want a helping hand at the end of the day. Parents living in one of the states offering financial literacy courses at their local schools should encourage their children to enroll. Parents living outside these states can encourage their local educators to prioritize making personal finance a part of their curriculum.Read next: Research revealed biases in language models and identified the difference between AI and human opinions
