I recently went to see a movie with my 7 year old daughter.  It was going to be a great Daddy and Daughter time, just the two of us having a fun few hours.

I had promised her a chance to see the most recent Shrek movie, and she was excited about it. For me, there was excitement because this might be the last movie in the Shrek franchise:) That said, I was looking forward to the movie because of the chance to share in her excitement, and to have a fun Sunday afternoon together.

So we went to the theatre complex, I parked the car, and we walked in. We saw on the marquee that the movie was playing in three forms:  normal screen, 3-D, and 3-D on an IMAX screen. For those that haven’t experienced it, the IMAX is pretty cool – you get to see the move on a much larger screen and in higher resolution. The sound systems are typically very good, so the overall experience is different but a bit better in my opinion.

Anyway, my daughter saw that it was showing in IMAX and got excited about the possibility of seeing the movie in that particular format. She really wanted to go. So, what does a dad do? I said yes. Couldn’t resist, and actually, I didn’t think about the consequences. Perhaps it was a few dollars more, I thought, but I really didn’t give it much more thought than that. I just thought of her happiness and excitement.

So we walk up to the ticket counter, and I ask for one adult ticket and one child ticket. The cashier promptly said: “That will be $30.50 please”.

I paused. I did a double take. I thought to myself…$30.50? Really? Are you KIDDING me?

So, I asked the cashier how much the other options were. She said it would have been $14.50 on a conventional screen, $23 to see it in 3-D, and $30.50 to see it in 3-D on IMAX.

I looked down at my daughter, with those puppy dog eyes of hers looking up to me, and I said to the cashier: “That’s fine. Here’s my card.” Then I let my daughter hand the card over (by the way – that’s not my daughter in the picture; kids aren’t growing up that much faster these days!)

So, as we walked into the theatre and to our seat, she said: “Daddy, these tickets are expensive.” Feeling like I had already said enough about money after questioning the cashier, I told her that it was ok and that I was glad that we were going to have fun.

Then, she surprised me, as kids often do to their parents. She said: “It’s a good thing you used your credit card so we didn’t have to give them any money.”

I paused, and thought to myself, surely she doesn’t think these were free. A few months back, she had shown some surprising maturity for such a young kid, when she told me about saving and investing. This time, it looked like another learning opportunity to teach a child the value of money.  Just to confirm, I asked if she thought that using a credit card means that we weren’t paying anything.

Her answer: “If you use your credit card to get something, it means it’s free!”

So, I tried to explain to her that if that were the case, then wouldn’t everybody use them?

“Yes”, she said. “If they don’t make what you buy free, then how do they work?”

I quickly came up with an example. I started by saying, “let’s pretend that you buy 10 hamburgers in a month, for $1 each. With a credit card, you can charge them each time, and then pay all $10 at the end of the month.”

She immediately said, “But I don’t like hamburgers that much!”

OK – I forgot that I was talking to little kid here! Let’s try again, I thought.

“Well, instead let’s pretend that you bought a barbie doll for $10”, I said. “If you pay with cash, you will pay the store $10 right away. If you pay by a credit card, you don’t pay them right away – but will pay in a month after the credit card company sends you a bill.”

“Why would you do that?”, she said.

“You would pay them because you owe them. Since the credit card company let you buy the things with their card, you will owe them later”, I said. “It’s not fair for them to let you buy things, and then you don’t pay them back.”

I think she got that, from her expression.

Then I added, “the good thing is that you can buy even more things, add up the cost, and pay them the total when the send you the bill. So if you got another Barbie two weeks later, and it was also $10, how much would you then owe the credit card company?”

She thought about it, and said, “You would have to pay them $20”. I was pleased – she figured out how the payment process works. At least that part of the equation was understoon, which is a good start!

Ultimately, I can’t pretend credit cards don’t exist. They do. Some even offer cash back. I want her to eventually have an understanding of their proper use, the need to never carry a balance or pay interest/late fees, and the benefits of cash.

Overall, this experience reinforced and also taught me a few more things about kids and money:

1. Don’t assume that they understand what appears obvious to you. Clearly, we all know that credit card doesn’t equal free. While far too many adults still charge away like there are no consequences, if you’re reading this or other personal finance blogs, you probably don’t do that. But if some adults actually do have difficulty understanding some basics, then it’s certainly understandable how kids have their own learning curve as well.
2. When explaining a concept to kids, keep it simple. Instead of complicating it as I initially did, I changed tactics and talked about one barbie doll instead of 10 hamburgers. One purchase makes it a simpler concept.
3. Make it interesting. Talking about hamburgers got her distracted. Talking about something she likes, Barbie dolls, kept her engaged.

Have you had any experience teaching kids about credit cards – whether younger child or teenager? Any tips to share with us?