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March 31, 2022

Practicing Safe Debt- How to Teach Kids About Credit, Debt, & FICO

How I Taught My Daughters About Money & to Practice Safe Debt
A dad spends a lot of time worried about keeping our kids safe. Having open and candid conversations around money is as vital as conversations about sex. 

Listen as I share some of the steps I took to ensure my girls are protected. 

Here's the video from Ray Dalio where he explains how the economy works. Must watch for yourself and your children. 

Leave a review! Drop me a message. Tell me what you thought of the episode.

Do you have any tricks or hacks that worked on your kids? Share them! I would love to hear from you.



Hey everyone and welcome back to my latest video essay on teaching our children to PRACTICING SAFE DEBT that's right. Practicing safe debt. It seems crazy to even talk about it that way. We should be talking about practicing safe debt as much as we talk about practicing safe sex. For the same reason that we feel that children should understand, our teenagers, our young adults should understand the importance of having sex and protected sex. We should be doing that with our children, because it impacts them for generations. It there's disease. There's unwanted pregnancies, all very valid and very needed conversations to have. What unfortunately is very common is that we don't talk about practicing safe debt. It is also, it will also impact our children's lives for generations. So I feel that teaching our kids, money management and practicing and using interest and debt in a positive way is actually very useful. It's not necessarily a bad thing. There's good debt and bad debt. And that's what I taught my girls because as an entrepreneur, I've felt and learned that not all debt is is bad. There is good debt to buy tools, to buy training, to buy things that allow us to grow that would then produce income in the future or more revenue or a bigger paychecks. The big news as a result of all the lessons that I taught my daughters around money, because I had been really deliberate and intentional with them because I knew that the, there are large implications for money, understanding money, understanding debt, understanding interest, compound interest, all the good stuff. Recently I felt a sense of validation because my oldest daughter who's 19 applied for a credit card. Thankfully, here with me. Got approved and did it on her own because she has a job, but also because she had a fantastic credit score. So stick around to the end and I'll actually tell you what I did to allow me or to help her get such a fantastic credit score without me needing to co-sign for that credit card. Now, what did I do with my children to help them to educate them on money? Well, for one, I am an entrepreneur and years ago actually read the book, Rich Dad Poor Dad, which helped kind of restructure my understanding around money, around debt, around owning a business. So I wanted them to read it because I wanted them to understand what I went through and some of the beliefs that I have come to pick up from that book. They read it, we unpacked it. We would sit down and have conversations around it because they became fun. It was a fantastic experience. It was, it was fun to just get into, because now we have words, we have a jargon that we can use and they would be able to understand what I was talking about, cause without having that proper context, it becomes hard to explain to them what money is, what interest is, what a credit is, credit ratings. A few years later I bought them the game Cash Flow for Kids, which is actually created by the author of Rich Dad Poor Dad. Because, it was a game it became fun to actually start to dig into the concepts even further. They started to understand what investing was, what buying properties and renting them out, flipping them. and they started in, in stock market, information. They really started to understand these concepts in a way that was fascinating to watch. Because I think one of the big things that we fail to appreciate about children is they can actually grasp big information. They can understand bigger topics. If we set up the context properly, if we explain it in a way that a child can understand it. This game helped me do that, it helped me start building the foundation for their, all the education around money and interest and credit that I needed to have moving into the future. Not long after that actually had to buy the adult version of cashflow because they had outgrown the other one, they were, they were whizzing through it. It became so easy for them. They understood the concepts, they understand the rules of that particular game. And they were able to escape the rat race because that's the point of the game is to escape THE RAT RACE. The rat race that we all know and love. And on top of that, maybe you have mortgage and maybe you're paying all your credit card debt, maybe paying school loans. That is the rat race that we all know. Right? So that's the point of the game escape the rat race. It maybe took a couple years before they mastered that game. We're gonna play it here in a couple of weeks when they come visit me again for my weekend, but they mastered it. So in the game, you, you pick a card, you pick a career. I mean, you can be a janitor. You can be a teacher, you can be a doctor and. With that comes all the income that those individual careers make. You have that in front of you. And on the flip side of that, If you're a doctor, for example, you have extensive bills or large amount of bills that you have to pay mortgage school loans, memberships, big lavish, things, because if you are a doctor you likely have a, a lot bigger expenses than you would, if you're for example, a janitor. And for me, when I was, when I first learned about this game it helped me realize it's really key thing, which is... when I played it with a group of people and that that's that thing that hit me hard was that everyone wanted it to be the janitor or the teacher. And I didn't understand that. I thought everyone wants to be the doctor or the lawyer, but in the game, If you have less expenses, that means you can escape the rat race even quicker. Yes, it is going to be hard, but it's going to be quicker because the point of the game is to have more in passive make more money in passive income than you do in a paycheck and payroll. So when you make $10,000 in passive income, And if your monthly income from your job from your job is $5,000 and I'm exaggerating here. Then you have escaped the rat race. Now you can basically quit your job and quit the rat race. Right? Well, if you're a teacher or a janitor, that's a lot easier to accomplish than if you're a doctor. And for me, that was a big lesson. And this is the reason why I love this game so much. I wanted to teach my girls about it because when I first played that game, it turned on the light bulb and it made me realize that my situation at the time, cause I actually the first time I played it was before I quit -my situation at the time wasn't that bad. I could actually leverage the fact that I don't have a lot of bills, it was after my divorce. I didn't have a lot of bills. I didn't have a lot of expenses. I didn't have a mortgage or a car payment... I could quit. So that is another reason why I love playing the game and I have a direct connection and I understand the significance of that little bit of information. Other things that they learned from the gaming included the difference between assets and liabilities. And this is just even metaphorically speaking, a concept that I have used throughout my parenting with them. In times when I have to teach them lessons that there are assets and their liabilities, things that are just not worth the cost, they become a liability It's a board game. So you go around, you go around, you get a paycheck and you do all these things. You have to play the game to really understand it... you rolled the dice and you can land on a spot. And I forget what the name of it is, but, it's this particular spot. And then you have to pick a card when you pick that card. One of the funniest things to me is that card may say: CONGRATULATIONS- You just had a baby! And for your particular career, that baby costs X amount. So if you're a teacher, it might be another $500 a month that you have to add to your expenses for the month. But if you're a doctor, that expense might be $2,000. And for me, one of the funny things, the one that's funny observations I had while we were playing this, as we continue to play it as the girls hated landing on that, obviously. I think a couple of times my daughter is even screamed that they're never having children. Obviously there were children and they were saying this because it was a result of landing on here. It's going to be harder to win the game, but I think it ingrained in them the idea that there is a cost to having children. When we decide to have sex and we decide to have children, it would be much more intentional. And for me, that is very, very important concept. There, there is a cost and it's, it's one that we as parents serve and are willing to pay because we love our children, but it's expensive. Right?. So if I can start planting that seed now through the game, why not? It's fantastic. And I can leverage that into the future for other conversations. Another thing that I did for them is I got them debit cards. I would give them an allowance and I did this like seven or eight years ago. And at this point I know that it's really common for banks to have debit cards for kids, which is fantastic. Use that, use that, leverage it, especially because frankly everything is, digital. I would give them basically their allowance. And what they had learned is to save, to put money away. If I would give them $25 for a week, for example, they were young enough that they didn't need all that $25 and they would put $20 in savings. Savings was basically me. I was the bank. We created a spreadsheet. They keep $5 in the debit card. And then they would transfer $20 into the spreadsheet with the bank, the savings account. And they would run that for a while. And it was really neat because what ended up happening for both of them is they would get several hundred dollars worth of savings. And then something big would come up and they say, "Hey dad, can I transfer a hundred dollars over to my, my account?" I do it within a few minutes because we're living in the digital age. Everything's much easier. And I would transfer it. They, you know, sometimes be a gift for a friend or for family. It was crazy because they actually got really nice gifts over the years for their friends and family, even though they never had a job strange. But because they did save and they understood that saving was useful they didn't need all that money all the time. They ate at home. We bought them clothes, so they didn't need to have it, but they started to really understand the value of saving. As they got older, I really started to explain credit cards and how they worked. They can be very useful, but at the same time, they can be very deadly. I explained to them what interest rates, a credit card companies charge and how they kind of hook you with all these bonuses and the, this and the that. And, but despite all of that, they can be really helpful. And if you didn't learn to manage them to stay in front of it at all times, and if you're really deliberate about it, they can be useful. And along with that, I made sure to teach them about a credit score and how it was going to be something that is, was basically the report card for their credit, how they managed it. I also explained to them at a very early age, what credit score, what FICO credit score was and how to manage it. Why is it important to manage it? They know that under no circumstances, should they ever get past 30% of your allotted credit? So as my big kid was 30% of 3000. And she said $900. Absolutely. Under no circumstances, should you spend or put on that credit card more than $900? It was started tanking because now you're using too much. And now your credit worthiness is going to be in question, according to the credit card algorithm, there's algorithms everywhere. She also knows because I told her this is what I've learned for myself. 10% under 10%, allows you to have astonishing credit. Because that means you have credit and you're using it. The credit card companies want to see that. So they give you credit and you have it at zero. They're not going to like that. They want to see activity, but if you're using over 30% or if you're maxing it out, then your credit score is going to tank. She understands that. Now obviously is the tricky part, understanding and knowing and doing is two totally different things. I would hope and really hope. And maybe in the future, I'll record a different video in five years from now where I talk about how she has managed it, how she ended up not managing it well and ruined her credit, I'll share that she won't like it, but I'll share it. I'm fairly confident that because we've been talking about this for so long that she will actually do a good job. She understands that she needs to maintain that credit score because she also wants to get an apartment. She has a great credit score. If she maintains that if she shows activity, when she has time to go get an apartment, she won't have to stress about it otherwise dad here will have to co-sign and as much as I love her, I'd rather not. It doesn't benefit her as much as it should if she just manages her credit. So to me, the best gift I can give her as she gets it to this age was making sure that I gave her the tools ONE to know what managing money and what managing your credit score involved. But also TWO, that she's able to do it on her own. There's something empowering, right? Knowing that you able to do that without that dad or mom. That also is empowering for me because it makes me feel like I've done my job. The big question that I teased out at the beginning of this video and this podcast is: How was I able to get my kid a 760 credit score at 19 years old? She never had it. Well, she does have a job now, but how was I able to do that? Well, apparently there's this little secret. You can add your kids as teenagers to your credit cards as users. And well, this is the key to that. Make sure that you have good credit and make sure that you're managing it well. Right? But if you do that, that history will be reflected in their first credit report. I found this out four or five years ago, and I immediately added them both to like four credit cards. Now, at the time, they didn't even ask for social security numbers so it wasn't even it worked. Like two years ago, I added them again because my oldest was coming around to 18 and I wanted to make sure that I did that. The second time around, they did ask for her social security number, which made me feel better that it was actually going to work. I still wasn't sure. About three months ago. I mean, she's been checking the credit report and like, what is it? Credit karma.com. She had been checking it almost religiously for over a year. She didn't get it at 18 immediately because she had nothing. She did have credit history, but I think she didn't have any other activity. Not completely sure why, but a couple months ago, two or three months ago, she got it. It was 762, 763. She was so happy. I was so happy because that means that that worked and that I had been able to get her there and it was through some trickery of sorts, but it's legal, it's perfectly legal. You can put them on your credit card, add them as users. And for me, I never gave him the credit card. I wonder. Here's where you might be able to do what I did, but better add them to your, to your account and let them spend something with their actual card. Maybe that'll actually trigger the credit report to show cause it'll show their name associated to that card in that activity. So when it's time and when they're 18, maybe it will kick out a report much sooner. Hmm. I didn't think about that til right now, but that's how I was able to do it. She is ecstatic. She feels empowered. She feels like she can do it. She does have a job. So she's trying to manage that and knows that she needs to avoid getting herself into a trap. I've talked about this at length since they were young. So I feel fairly confident that she will not put herself in the bind that is really common. That I did. The reason I, I know all this stuff is because I had to get myself out of that credit hole. I out of this credit, terrible credit score, I went years without using any credit and just using cash because nobody would give me credit After my divorce it was a mess. I had to learn all, all what goes into a credit score? What are those numbers that they look at? I had to make more money, frankly. I had to leverage the Rich Dad Poor Dad principles, and actually build a business and build my value that way I can outpace, everything in the world and the cost. I had to learn all these things for myself. So through that, I obviously taught my daughters. One of the big metaphors that I got out of all this is that you have to have a good credit score if you're going to pull this off for your children, you have to manage your money well, because if you do not, then they're going to have a bad credit score. So it was better not to even put them on there if you're unable to do that at this time, just to know that there are ways to start helping them now. And if nothing else go out there and start educating them on it, start showing them videos. There's a fantastic video by Ray Dalio that I showed him years ago on how the economy works. I wanted to show him a high level view, how money is generated, how products are sold and how we move around in the world. To me, that is just as essential, just as important that they understand the big picture. And then what role we play as individuals, through our own activity, through our own work and through our labor. I'll include that in the show notes, because I feel like everyone should watch it. The adults should watch it because they understand that gives you the insight. You need to be able to explain it to your children as well. Thank you for listening in to the latest podcast. My name is Teevee from teevee.fm. See you in the next podcast. Buh bye.