Explaining credit to kids

Last updated on 25th February, 2025 at 02:34 pm

Access to credit can be fun and feel great – but not understanding credit card fundamentals can quickly lead to drowning in debt. We’re giving you the conversation pointers and play tactics you can use to empower your kids to handle credit wisely.

Reading time: 10 minutes

Why understanding credit matters

Preparing kids for financial independence also means teaching them about credit and debt. By teaching kids financial responsibility from an early age, they become better equipped to manage money wisely and avoid costly debt traps later on. By primary school, children are able to start learning about borrowing, interest rates, and repayment.

When to start talking about credit

Audrey Tan, product associate for MoneyTime, an online, gamified financial literacy programme for kids aged 10 to 14, says parents often think children are too young to understand personal finance. “Kids are smarter than you think. They can understand things like mortgages, real estate, investing, and business if you start at a basic level and level up when you know they’ve got it,” she says.

What kids need to know

Talking about credit should go hand-in-hand with understanding debt and interest rates. (You can check out our explainer on interest here). At a basic level you’ll want to explain:

• What are credit and debt and how do they work
• How interest rates affect what you owe
• What happens when credit is misused
• Building a credit score (for older kids)

Age 6-11: Focus on basic concepts.

At this age, children can start learning the basics of borrowing (debt) and interest in a simplified way. When you borrow a toy or money for a treat, you make a promise to give back the toy or repay the money – and that’s called debt, says Tan.

You can introduce the concept of interest as a “thank you” to the lender – using examples where your kids can borrow something from you and pay it back later with something extra for interest.

Explaining credit

Here’s how you can explain credit in simple terms for younger children:

“Credit is like borrowing crayons from a friend. Suppose you’re colouring and you don’t have a red crayon. Your friend lets you borrow theirs and you promise to return it later. To thank them for letting you borrow it, you might give them one of your crayons in return,” says Tan.

“When adults use credit, they borrow money from a bank or a store to buy things they need, and later, they pay it back, sometimes with a little extra, called interest, to say thank you. It’s important to only borrow what you can pay back, so you don’t get into trouble. Using credit wisely is like being a responsible friend who always keeps their promises.”

Age 12-15: Expanding on credit

Teens can grasp the idea of credit scores and loans, says Tan. Explain how credit works with real-world examples, such as credit cards and vehicle finance, and stress the importance of paying it back on time. Teens can start learning how interest works in real life, including the cost of borrowing money and how it affects their total repayment.

Explaining credit score

Money talk can leave us tongue-tied, so Tan provided conversation pointers for credit scores:

“Think of a credit score like a money report for how responsible you are. Just like a school report, where good grades show you’re doing well, a high credit score shows banks and lenders that you’re good at paying back what you borrow.

“When you borrow money, like with a credit card or loan, you’re expected to pay it back on time. If you pay on time, your score goes up. But if you miss payments or borrow more than you can handle, your score goes down.

“A good credit score makes it easier to borrow money in the future, like when you want to buy a car or a house. Think of it like building trust with people who might lend you money in the future,” she says.

Additional resources

Check out the kids’ finance podcast Million Bazillion for an episode on how credit cards work.