Talk to your kids about money: Credit and interest 

Interest and credit might seem like boring topics to kids, but that's only if you try to teach them within an adult context. Learning about investing and earning interest on your investments can be made into a kind of magic for kids. Who knew you could get more money to buy toys if you just wait a few months? Similarly, you can teach kids about credit by allowing them the treat of delaying their chores so long as they agree to do more chores tomorrow.

All you need is a little creativity and you'll be equipping your kids with critical life skills in no time. Knowing how to use interest to make your money work for you and understanding both the convenience and the drawbacks of credit if misused will help you protect your kids by making sure they will make informed choices about how they save, invest, and use credit in the future.

So, what are the best ways to teach kids about credit and interest? Here are some tips for every age:

You might think this is too young to teach kids about complex things like credit and interest, but it's a great time to help them understand the concepts. Here are some ways to make it fun:

• Offer your kids a treat they love but say that if they invest it in the 'treat bank' rather than eating it today, they will get two treats tomorrow. Praise them no matter what they choose!

Kids in this age bracket are ready to learn some more practical lessons about credit and interest. Here are some things you might want to cover:

• Start talking to kids about credit cards and how they work. All they know is that adults use them to pay for things, so explain to them the benefits of using a credit card like earning rewards points, the convenience, and benefits of building your credit, but also tell them the drawbacks if you don't pay it back on time — like the interest you're charged on your account. One way to do this might be to have them practice by borrowing a small amount of money from you and paying you back with interest.
• Give your child a guaranteed investment certificate (GIC) for their birthday. Get one for a one-year term and tell them how much the GIC will be worth when they cash it out. While it likely won't have appreciated too much, this is a great opportunity to introduce the concept of compound interest, or how their money could grow significantly over a longer period of time once their interest starts to earn interest. Play around with calculating different investment term lengths (try 5, 10, 20, 30, or 100,000) on a compound interest calculator to share with your child just how much their small investment could grow.

By this age, kids are ready to learn more about all the ways that credit and interest affect your life and will someday affect theirs. Here's what to focus on at this age:

• Think about buying your kids one share of a company that they recognize. Maybe it's the company that makes the video game that they play non-stop or the stock of their favourite publicly traded retailer like a clothing store. Teach them about how stocks work and can earn interest over time and how they help people invest for big things like their retirement. Check on their investment together every month to see if it has increased in price. If you get them a dividend paying stock, they will also get money every so often that they can spend, which will show them the tangible results of earning interest on their investment.
• Do you have a mortgage? Talk to your children about how much you pay for your mortgage and how much of your payment goes towards interest versus the principal of your loan. Explain to them how much you would have paid for your house if you bought it in cash versus how much you will pay over the life of your mortgage (unsure how much? Use a mortgage calculator to figure it out!). Want to get them to understand the importance of having a good credit score? Show them how much more you might have paid if you had needed to pay 2% or 5% more on your mortgage.
• Talk to your kids about your debt. Do you have student loan debt? How about credit card debt? An auto loan? A home equity line of credit? Tell your kids about what each of these things are, why you borrowed them, and their benefits and drawbacks. If you're trying to repay debt, don't hide it from your kids. Get them involved in helping with your debt repayment by making it a family challenge to find ways to save money and pay off your loans. Keep a counter on the fridge to track how much you pay off and celebrate debt repayment milestones as a family.
• If you have been investing in an Registered Education Savings Plan (RESP) for your child, show them how much it has grown over time through compound growth and the power of government incentives. Encourage them to contribute some of the money that they earn from part-time jobs to it so they can see how much it will grow.

Your child might be getting ready to start taking on debt themselves for school and it's almost time for them to get a credit card to help them start building a good credit score. They can also start investing in their own bank or brokerage account once they're 18. Here are some tips to help ensure that they're ready for all those new responsibilities:

• Now that your kids are almost eligible to get their own credit cards, it's time to teach them how credit scores work and how your credit score is calculated. Tie this into earlier lessons about how paying more in interest for a loan will end up costing you a lot more over the life of that loan. Share with your kids what your credit score is and check it together. Come up with strategies to help improve it based on what you've learned about credit scores and see how long it takes to see the number change.
• Now's the perfect time for the student loan conversation. If your kids will need loans to get a post-secondary education, tell them about how you managed your student loans in university or college and what your repayment has been like. Show them how much student loans will cost them over the life of the loan and help them come up with strategies for how they can borrow less by getting a part-time job or going to school close to home.
• Help them open a Tax-Free Savings Account (TFSA), which they can only do when they turn 18. Help them come up with a strategy to save money in their TFSA until they need it or tell them about how the contribution room they're earning now will roll forward until they are making enough money that they can contribute to it.
• Help your kids get their first credit card. When they are 18, go to the bank with them and help them fill out the application and then teach them how to responsibly use and pay back money charged on their credit card so that they can start building their credit score. 

Credit and interest are complex things — but they have a deep impact on everyone's life. It's crucial that your kids understand how both work and can navigate them in a way that allows them to get the most benefits.

Teaching your kids about credit and interest will help them fulfill their dreams — from going to university or college to buying a home to retiring comfortably and safely. Teaching them these lessons might seem complicated, especially if you don't understand credit and interest well yourself, but sharing about your own experiences will help your kids understand how to manage their finances themselves someday. You've got this — and soon they will, too.