How to teach children what credit is, and when to use it

Talking to young kids about credit might sound a little early—but it’s actually the perfect time to start. Young children are already learning how to make decisions, handle money (hello, piggy banks!), and think about the future. That makes it a great age to introduce the concept of credit in a simple, engaging way. The goal isn’t to dive into credit scores or mortgage rates, but to help them understand how borrowing works, when it’s helpful, and when it can cause problems.

Here’s how you can introduce credit to young children in a way that makes sense—and sticks.

1. Start with the Basics: What Is Credit?

For kids, credit can be explained like this:

“Credit is when you borrow money to buy something now, and promise to pay it back later—usually with a little extra called interest.”

Give them an example they can understand:

“Imagine you want a toy but don’t have enough pocket money saved. I let you borrow the money, and you promise to pay me back over time. That’s using credit.”

“I owe you” notes can also help make the concept click (and get you out of trouble if you don't have enough cash on pocket money day!).

2. Credit Isn’t Free: Explain Interest Simply

Interest is a key concept kids should grasp early. You might say:

“When someone lets you borrow money, they often charge a little extra. That extra is called interest.”

You can make it visual with play money (download and print some from here if you need) and playing bank manager:

• You (the bank manager) loan them 10 coins.

• You explain that if they want it, they have to agree to pay you back 12 coins in 5 minutes' time.

• Those extra 2 coins are the interest.

  
  
  
  

3. The Pros of Credit: What’s It Good For?

Even young kids can understand that credit isn’t bad—it’s a tool. Explain that credit is helpful when:

• You need to buy something big, like a car or house (you can introduce the word mortgage here, if you want).

• You want to pay for something now and pay it off over time.

• You have an emergency and don’t have savings.

Use age-appropriate comparisons, like:

“Sometimes adults use credit to fix the car if it breaks down, so they can still get to work.”

4. The Cons of Credit: What to Watch Out For

Credit can cause problems if it’s not used wisely. Keep the explanation clear:

• If you borrow too much, you might not be able to pay it back.

• If you don’t pay on time, you might have to pay even more.

• If you can't pay back the money you borrowed, and the interest, you could lose the thing you borrowed it to pay for.

  
  

5. Let Them Practice: Mini Credit Lessons

You can build small, safe opportunities for kids to “use credit” at home:

• Let them “borrow” pocket money in advance for a toy, with a plan to pay it back.

• Create a family store with prices and offer them a credit option—with interest.

Talk about how they feel after using “credit.” Was it worth it? Did it take a long time to pay back? What do they think they might use credit for again?

6. Build up to the future

Even though kids can’t get credit cards yet, they are building habits. Show them how you use credit responsibly:

• “We’re using a credit card to buy groceries, but we’ll pay it off next week.”

• “We saved for this trip so we wouldn’t need to borrow money.”

The way you talk about money and credit teaches more than any lesson ever could.

Final Thoughts

Young children are naturally curious—and they love feeling “grown up.” Teaching them about credit doesn’t mean explaining everything at once. Just plant the seeds: credit is borrowing, borrowing costs something, and being responsible matters.

These small lessons now build a big future later.

Bonus Tip: The Hoard Book covers credit in one of its chapters! Turning financial learning into fun is one of the best gifts you can give your child.