So, FICO is reinstating authorized user accounts as a part of people’s credit history and reports. One of the primary things this will do is let children take on the credit scores of their parents.
When I wrote about it, I wondered whether this is a good or a bad thing. On the other hand, it means that people will be getting credit for something they didn’t do. But it’s also useful given the state of our credit system. FICO is probably correct in assuming that children will have similar financial behaviors as their parents.
Not being a parent myself, I can’t tell you how I’ve taught my children about credit and money management. I could give advice, but I don’t have too much experience teaching children by example (at least not every day). But I can tell you things I learned from my parents:
- Credit card debt is bad. They did have a significant amount of debt at one point in my childhood. It was based on a number of factors. They taught me that while credit cards may be useful, you have to look at the big picture. Can you really afford it? How long will it take to pay off? They emphasized the paying cards off at the end of the month. In fact, their teaching was so strong that I figured I could just do the same with a debit card. I still haven’t used a credit card except for my plan of building credit by using it for my phone bill once a month. I just don’t need to.
- Know how much money you have. I’m not sure how she did it, perhaps it was checking receipts every time she withdrew money, but my mom always seemed to know how much money we had (there may have been checkbook balancing when I wasn’t looking…or just using her memory to get a general picture). Then, I remember them switching to a bank that offered online banking until our bank did. Being aware of available money was important to both of them.
- Pay what you owe and do it promptly. When bills arrived, they’d be put in a special spot on top of the piano. I think it was originally a pile but eventually became a small basket when we had one. I know Dad started using online bill payments once it was reliable.
- Know what you’ve spent. I remember my mom always saving receipts. She’d file them in her wallet and then put them somewhere else. I don’t remember now if it was the bill pile, but it was somewhere she could use them to find out what she’d spent. I also remember her recording every single check. Of course, online banking and Quicken makes this a bit different, but it’s still important to know what you’ve spent, particularly since checks may not show up for a while.
- Earn interest. Both my parents are quite fond of math. I remember learning about compound interest pretty young, I don’t know if it was in math class or conversation. It made a strong impression.
What my parents didn’t really teach me:
- I don’t know if my parents ever had a budget. I know I never saw it if they did. But as I said above, my mom always seemed to be aware of how much money we had. As far as I could tell, they took care to know how much money they had so they wouldn’t overspend.
- I also didn’t know anything about their retirement accounts. (not quite accurate, since I’ve learned a little bit more recently.) I remember my grandfather coming over and giving them a whole talk about what he was doing with the stock market. I don’t remember any specifics, having been quite young, but I do remember thinking that it must be important to learn about this in the future. I knew that compound interest was good, but it was a long time before I put that together with stock market returns.
- They didn’t teach me much about taxes. They were certainly there for me when I did my taxes and I actually did them all by hand without too much difficulty until last year. Dad, in particular, answered a lot of questions the first time and I pretty much did my own after that. I’m sure they’d have helped me answer tax questions in the future if I hadn’t become interested enough in PF to research them myself.
All in all, I think I got a good financial education from my parents. Perhaps it could have used more big-picture perspective (it might have, had I not become more proactive recently), but it was almost everything that a credit card company would want from a consumer. Certainly everything you’d want from any other loanee.
The only thing that makes me less attractive for credit card companies is that I won’t carry a balance. They’ll only make money in the 3% or so that the merchant has to pay. For other loans, it’s great that I’ll pay things off promptly.
What did you learn about money from your parents? What didn’t you? What do you plan to teach your kids?