While many American parents are talking to their kids about money, most are skipping over a key money term: credit. That’s according to a Chase survey, which found that only 32 percent of parents have explained what a credit score is. And that leaves many young adults unprepared to open their first credit card.
Personal finance expert Farnoosh Torabi recommends introducing the concept of credit to your kids when they're around age 16. Starting in high school, "you definitely want to have a credit conversation with them because they are approaching college," she tells CNBC Make It. "And they'll be able to grasp concepts like compound interest and interest rates."
Just because you have a conversation with them doesn’t necessarily mean they’re ready for their first card, though. Torabi recommends testing them out with cash first, and then with a debit card. Observe how they use their money: Do they spend it all right away? Do they think through their purchases? Do they save a chunk of it?
The important concept to teach is that there are a lot of different ways to use the money they earn, says Torabi: "It's not just to spend on movie tickets. You can spend it, save it, invest it, lend it or donate it. And knowing that, they'll start to really leverage their freedom."
Once they prove to be responsible with cash and a debit card, you can consider graduating them to a credit card, she adds.