As a parent, you can say it until you’re blue in the face: “Money doesn’t grow on trees!” But until your teenager or college-aged kid actually has to balance a budget and manage finances on their own, the message might not really sink in.

Now, more than ever, it’s critical for young people to become money-savvy before they are launched into the “real world.”

Well the truth is, it’s hard out there. This is no less true for the youngest generation of adults. The economic recession has deeply impacted young people, who now face chronic unemployment and stagnant wages; and don’t forget an unprecedented amount of student loan debt.

The good news: you can tip the scales in your child’s favor by helping them build good credit early. In this article we’ll talk about a few strategies to instill financial literacy and productive spending habits in your kids.

What parents can do to help their child’s credit score

As you know, a solid credit score will follow your child throughout their life and have a resounding impact on everything from job offers to apartment rentals.
There are steps you can take now to help build your child’s credit score for the future. For instance:

• Put a household bill under your child’s name. This could include gas, electric, phone, etc. Even if the child doesn’t actually pay the bill, they can watch for it every month, practice working it into a budget, and help you remember to pay it on time — all while building credit.
• Co-sign on a credit card for your child. This can help your child secure a lower interest rate and higher credit limit than they might otherwise be able to accomplish. Just remind your child that now your credit is tied in with theirs — so they had better stay on top of that bill!
• Teach them about credit scores. Few numbers are more important to a person than their credit score. While you’re helping your child build credit, why not tie in a lesson about the importance of good credit score? Teach your child how to pull an annual credit report, evaluate progress, and identify red flags.

What young people can do to start building credit on their own

Do you prefer a more hands-off approach? No problem. You can still help your child get off on the right credit foot. Remind them that all of the following actions can improve credit:

• Get a job. It’s as simple as that. Steady income will offset any outstanding debt, and an increase in debt-to-income ratio means an increase in credit score. In addition, having a job necessitates a conversation regarding taxes — another extremely valuable lesson for young people.
• Sign up for a “beginner” card. Not ready for the platinum card? Young people might consider starting with a store credit card from a retail outlet where they shop frequently. Secured credit cards, which are backed by cash deposits, are another “ease-in” option that don’t require a long credit history for approval.
• Use your family home address for credit applications. If your child is bouncing around from dorm to dorm or apartment to apartment, it may raise red flags for lenders. Assuming your student still has legally viable ties to home, use that address for credit card applications.
• Be smart about loans. We’re not encouraging your child to take out loans just for the sake of building credit (in theory, it has the opposite effect) — but since most young people will face some loans (school, auto, and/or personal) at some point, there is a clear opportunity to pay in full and on time each month. Responsible loan management will improve credit scores. Keep in mind that you, as a parent, may still need to co-sign on loans for a young person.

Financial Literacy 101

Unfortunately, not every school teaches this class. Still, it’s one of the most important things a young person can learn, and you just might have to be the professor. Ideally, young people would be comfortable with all of the below skills before leaving for college. But if you’re starting a little behind, don’t panic — it’s better to teach these skills late than never at all!

• How to handle a checking and/or savings account
• What’s the best kind of checking or savings account for your kid given their situation? Is there a monthly fee? What happens when you overdraw the account? What kind of interest rate will you earn? How much do checks cost? These are all important considerations.
• How credit cards work
• This includes APR, credit ratings, and hidden fees. Unfortunately, too many young people (and people of all ages, for that matter) think of credit cards as “free money.” Squash this notion, pronto.
• How student loans work
• Roughly 60 percent of the 20 million people who attend college each year borrow money to help cover the costs. If your child is included in that group, it’s critical they understand the nature of student loans (even if the bill is going to Mom and Dad). Will there be a grace period? Is there a possibility to defer? What is the interest rate? Is any of it subsidized? What will the payments be? How long will it take to pay off?
• Budgeting
• This is a big one. All young people should understand how to create — and stick to — a budget. It could be as simple as a spreadsheet, or you could splurge on some fancy software. Either way, your child needs to grasp the fine art of “money in, money out” and learn whether or not those new sneakers are going to get in the way of rent at the end of the month.

You’ve taught your child everything from riding a bike to getting rid of monsters lurking under the bed, but financial literacy is one of the best lessons you can provide. It’s the gift that keeps on giving throughout life.

Start the lessons now, before your child is out on their own trying to navigate life in college and beyond. Unfortunately, early financial mistakes can linger for a long time. Emphasize that the best way to avoid mistakes is to get the lessons in advance, and then actively practice strategies related to balancing a personal budget, getting a job, managing a savings account, and properly using a credit or debit card.

Trust us: your child will thank you for it.