Teens may like to think they know everything, but they still have a lot to learn about credit. It’s not often a topic taught in their math classes, so anything they learn about it has to come from you.

Are you ready to be the teacher? To make sure you’re prepared for your first lesson, take a look at the tips below.

1. The Use of Credit Scores

Just like your teen receives a report card for how they do in class, they’ll receive a credit report for how they handle loans and lines of credit once they become a borrower. Explain to them the importance of acing this report by paying bills on time and reducing how much they put on a card.

The better they do here, the easier they’ll find it to qualify for more affordable borrowing options in the future.

Experian, one of the major reporting agencies, has a good resource on the basics of these scores. Show it to your teen so they can see how the financial world generates these scores.

2. The Differences Between Financial Products

The word “credit” as something you borrow is a sweeping umbrella term that describes a vast array of financial products. To you, that much is obvious, but it may not be so clear to your teen. Go over the list below to make sure they understand when and why they would choose one form of credit over another:

Credit Cards and Lines of Credit

They may use these revolving products for daily expenses, big purchases, and unexpected repairs. They don’t close once your teen pays off their balance, so they’re a convenient option for ongoing expenses.

Emergency Installment Loans

Emergency installment loans act as a safety net when your teen runs into medical problems, unexpected car issues, and other surprising expenses. They may turn to these options for borrowing cash if they don’t have savings or other funds to cover these expenses.

Student Loans

Student financial assistance is there to help them with the cost of education, including tuition, books and supplies, and even residence.

3. Credit Isn’t Income

While an installment loan, line of credit, or student loan gives the borrower more money to handle their expenses, your teen needs to understand it isn’t free money. They have to repay every dollar that they borrow, plus some. That’s because every financial product comes with interest, financing charges, and other fees that they’ll have to pay.

Go over these costs of borrowing, explaining that they vary depending on the financial product, lender, and credit score. Since they’ll wind up paying more than if they used cash, encourage them to borrow only when it’s absolutely necessary and when they can afford the rates, terms, and conditions.

Bottom Line

Your teen will always be your baby, but sooner or later, they’re going to grow up and enter the real world with adult problems. You can prepare them for these challenges by teaching them about finances. Look over these lesson plans and take some time to brush up on anything you don’t know. This way, you can be the super-parent with all the right answers.