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Last Updated: 24th April 2022

Protecting Your Child’s Identity and Financial Future

As a parent, it is obvious that you want to ensure the safety of your children in any aspect. From their health to education and even their financial future. While this is the responsibility of all parents, how exactly are you going to protect your children’s identity and financial future? 

Written by: Big Piggyy

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Identity theft is a crime where someone tries to obtain your confidential data to commit fraud. This involves data related to your finances, such as bank account, credit card, and social security number. 

 

If you think that only adults experience this serious cybercrime, be informed that your children are the most vulnerable possible victims. In fact, based on the 2021 Child Identity Fraud Study, more than 1.25 million children in the United States fell victims to this activity.

 

According to a Detroit Free Press article, it has also been estimated that child identity theft affects 1.3 million children annually, and 50% of them are younger than six years old. This is clearly an alarming number for parents who want to protect their kids. 

 

What is Child Identity Theft? 

Child Identity Theft is a special case of identity theft for kids where all the stolen information belongs to a minor. All sensitive information that can be stolen to commit fraud is your child’s social security number, name, birth, and other important information.

 

When a person obtains your child’s data, they can use it to apply for government benefits, open multiple bank and credit lines, apply for a loan, and any other actions that risk your child’s identity.

 

Signs of Child Identity Theft

As a parent, it is important always to check your child’s confidential data. Fortunately, you can determine if your kid has fallen victim to this crime. Here are some of the warning signs of identity theft you can check: 

 

Turned down for government benefits

In most cases, getting turned down for government benefits is a tip-off that your child’s data has been stolen. For instance, your child got denied when applying for health care coverage. This is because someone uses your kid’s information to enjoy that benefit. 

 

Calls about bills in your child’s name

When you start receiving calls and emails from a collection agency saying that your child owes money, it can be a sign of child identity theft. It can be an overdue bill listed under your kid’s name in an account that you are unaware of.

 

Receiving a letter from IRS that your child has taxes

Your child’s stolen SSN will do significant damage. When you receive a letter from the IRS that your child did not pay income taxes, it could mean that someone put your child’s social security number on tax forms.

 

Denied child’s student loan application

If your child has been denied a loan application, it could mean that your child has a bad credit rating. Getting a bad credit would mean that someone has used your child’s information to open a credit account, loan applications, or apply for utility services without paying the bills on time. 

 

Protecting your child’s identity

Identity theft can be unnoticeable for years unless you start receiving the warning signs mentioned above. So, how should you put up an identity theft protection for your child? The best way is to do prevention. Here are some actions you can do to protect your kid from identity theft: 

 

Provide less information

Child identity theft often begins with obtaining the Social Security Number. What can someone do with your social security number and date of birth exactly? Thieves can use your child’s SSN to file false tax returns and other frauds. You should not provide their Social Security Number to anyone as a safety precaution, even if the one asking is someone you are close with.

 

Always make it a habit to ask questions before giving away any confidential information. If the information is really needed to disclose, ask who would be able to access it or how they intend to protect its confidentiality. Giving less information would mean the protection of your child.

 

Suppose you carelessly give away your child’s personal information like their SSN to their school. Once the data security has been breached, you would never know who could possibly see that information. It would risk your child becoming a victim of child identity theft. 

 

Protect physical documents with personal information

Any documents that contain personal and confidential information should be kept safe at all times. But you might ask, how do you protect your physical documents exactly?

 

You should always put important documents in a safe cabinet with a lock and key. For better security, always opt to put them in a secured space with a digital access code with only limited people who know the password. 

 

When the time comes that you need to dispose of your sensitive documents, it is crucial to get rid of them properly. Do not just put your documents in the trash, as it is similar to giving your information to anyone. 

 

Buy a paper shredder if you don’t have any in your home. Many people consider shredding one of the best methods to dispose of important files. This is because they are small enough to fit in a room, allowing you to dispose of your files conveniently.

 

If you don’t have any paper shredders, you can burn them instead. Make sure to throw the sensitive papers into the fire piece by piece. Do not dump them all at once, as some parts may remain unburned after setting them to fire. 

 

Delete personal information before disposing of electronic devices such as cellphones and computers 

 

The proper way of disposing of gadgets is by creating a backup file first. After that, check any removable storage in your devices and remove those that likely contain personal information.

 

For personal computers, it is better to remove the hard drive found inside. To ensure that no data is retrievable anymore, do a secure wipe. This action not only deletes your data but also overwrites it multiple times. 

 

You should also do the same thing for your smartphone or tablet. Create a backup first for you to have copies of your information, then encrypt the device by setting a password. Lastly, to successfully wipe your stored data, do a factory reset before disposing your phone or tablet. 

 

Be cautious about what you share, especially on social media.

There are many social media security tips you can use to secure your child’s information. You should be careful about what you share or post on social media. Typically, creating a social media account would ask you for your name, date of birth, place of birth, and even your address. If disclosing them can be avoided, do not put this information on the platforms. 

 

Freeze your child’s credit file 

You can freeze your child’s credit file as a safety precaution to ensure that no criminals could use your child’s name to borrow money or take out credit. 

 

A simple way to freeze your child’s credit file requires you to send necessary documents to the three major credit bureaus, namely Equifax, Experian, and TransUnion. These credit bureaus are the ones who maintain and gather data on the credit use of a consumer. 

 

To freeze your child’s credit file, you must send the three agencies their needed documents. Requirements may slightly vary, but it typically involves a government-issued ID, you and your child’s birth certificate, you and your child’s social security number, and any bill or statement with your name and address on it. 

 

Many states allow you to freeze a credit file already. Some of them are Alabama, California, Colorado, Florida, Georgia, and many more. You can check all the listed states where you can freeze your child’s credit file

 

What is Credit Freeze? 

If you still don’t know what or how to credit freeze your child, learning about it would be highly beneficial. 

 

A credit freeze is an anti-fraud measure where the credit bureaus protect someone’s credit report. This is also called a security freeze, as it is a way to secure personal information from identity theft crimes. 

 

Anyone can request the three major credit bureaus to freeze their credit file, including you, for your children. You can simply contact the credit agency and supply the necessary documents to ask them to freeze your child’s credit report, regardless of whether the identity has already been stolen or not. 

 

Reasons

However, should you freeze your child’s credit? Is that still really helpful and necessary? In case you are still hesitant as to why freeze the credit report of your child, here are some of the reasons that could help you convince and do it for your child’s safety:

 

Freezing your children’s credit files would protect them from identity fraud

Securing their credit file would prevent thieves from committing fraud by using your child’s personal information. They will not be able to open new credit lines, make big transactions, and do any unpleasant things that could harm your kid. 

 

It will not affect your child’s credit score

By the time your children are already of age, you should not need to worry about their credit score being affected because of the credit freeze. It would not impact the ability of your children to use and create credit accounts. 

 

It’s free and lasts indefinitely

Freezing your child’s credit file would cost you not even a single penny. Credit freeze became free of charge in September 2018. It will also last indefinitely until you request the major credit bureaus to lift the freeze. 

 

How To Freeze Credit

Freezing your child’s credit only involves simple steps when filing a request to the three major credit bureaus. Giving them adequate identity theft protection by freezing their credit report. 

 

You can use the following to freeze your credit:

 

The requirements to credit freeze your child’s report may vary. You should also send the letter and the documents to the agency’s address and just wait for the confirmation of your request. 

 

Other Ways of Identity Protection

There are still other ways to protect your child from identity theft aside from freezing their credit file. Here are other alternatives to ensure that your kid’s confidential information is protected.

 

Fraud Alert

If you do not want to freeze your kid’s credit report, you can opt to use a fraud alert instead. A fraud alert is a warning put on your child’s record that prevents thieves from creating a new credit line under your kid’s name. This typically involves a phone call with you to verify that you know the transaction before its finalization.

 

Fraud alert has three main types that you can choose from:

 

Fraud alert

This is the most basic type of alert that you can use to protect your child’s credit. It has a one-year expiration and is renewable. When you put this alert on your child’s report, you can request a free copy of the file from each of the three major credit bureaus. 

 

Extended Fraud Alert

This alert lasts longer than the basic type as it has at least seven years before expiry. However, an extended fraud alert is only available once your child has already become a victim of child identity theft and filed an FTC identity theft report with either IdentityTheft.gov or the police. 

 

Active-duty fraud alert

For a parent who wants to protect their kid from child identity theft by filing a fraud alert, this type will not be applicable as this is only for those who are rendering military service. 

 

Credit Monitoring

Another way to ensure your child’s credit security is by having a credit monitoring service. Credit monitoring involves tracking any transactions and changes in the borrower’s behavior. As a result, this would be effective against child identity theft as you will be informed whether a potential fraud has been committed.

 

What to do if you discover a problem

In a case where you think that your child’s personal information has been stolen, you should immediately follow the recommendations of the Federal Trade Commission on what to do when someone’s using your child’s information. Knowing how to file a report to the police for identity theft would also be useful to protect your kid. 

 

Step 1: Report and close the fraudulent accounts 

Immediately contact and close your child’s accounts used for fraud. Report the case to ensure that the thieves would use no other accounts. 

 

Contact the companies where fraud happened

You should immediately contact the companies’ fraud departments that your child has become a victim of child identity theft. Request to close your child’s account and submit a written confirmation that he is not responsible for any transactions. 

 

Contact the three credit bureaus

Inform the three major credit bureaus that someone opened an account with your child’s information. You may request them to remove the fraudulent accounts under your child’s credit report. 

 

Step 2: Freeze your child’s credit report. 

If your child is under the age of 16, you can ask the credit bureaus to freeze your child’s credit file on their behalf. This will prevent any thief from making new credit lines under your kid’s name and help protect their credit rating. 

 

Step 3: Report child identity theft

Once you secure your child’s fraudulent accounts, immediately file a report at IdentityTheft.gov. You can also check the identity theft victim assistance at www.ftc.gov/idtheft

 

Guiding your child’s financial future

Financial illiteracy has always become one of the biggest problems for individuals. If an individual is financially illiterate, it could result in a poor investment portfolio, bankruptcy, no retirement plan, and high debts.

 

People could be academically educated but may be poor at managing their finances. In reality, many financial surveys showcase poor people’s financial status. 40% of Americans admitted that they have only $10,000 saved when they retire, and it was also stated that almost half of the American households live paycheck to paycheck. 

 

For debt statistics, an average household pays $904 in their revolving credit card debt annually. This is not especially shocking since it was revealed in a survey that within the first three months of 2020, American household debt rose to $14.3 trillion. 

 

What are the things you need to teach financial literacy to kids? In that case, you should know the four stages of a child’s development to tailor the proper way to equip your child with financial knowledge. 

 

Preschool and early elementary (Ages 4-6)

Preschool and early elementary level is the perfect time to teach your kids basic financial concepts slowly. You can start teaching your kids about coins. Let them count coins with different values and sort them out. Once they adapt to the concept, you can increase the challenge by including bills. 

 

Elementary (Ages 7-10)

This stage should be the perfect time for your kids to learn about financial responsibility and make wise spending decisions. You can teach your child to spend money wisely by taking them with you when shopping. Teach them while shopping, such as making purchases on priorities like the basic necessities. 

 

Middle school and junior high (Ages 11-13)

When your child reaches the age of 11-13 years old, start teaching about the basic credit concepts like the power of compounding interest. You can start slowly by teaching them how banks handle and store money with interest rates. 

 

This is also the perfect age for your children to learn how to allocate their money wisely. You can start teaching them about the different budgeting strategies, such as the 50/30/20 rule. 

 

High school (Ages 14-18)

During their teenage years, let your child handle their bank accounts and manage their personal finance. Teach your child the basics of credit and debit and loans as they are at the right age where loans or debts can be realized. 

 

Habit-forming 

Establishing good money habits at a young age is one of the ways a parent can prepare for their child’s future. Let your kid slowly build saving, spending, and giving habits. After all, personal finance starts with a deep foundation of financial literacy and good practices. 

 

Education

Always add new financial concepts as your child grows older. Your child should be equipped with the most basic to the complex concepts such as credit scores, compound interest, and investing as they grow up.

 

Investing in your child’s financial education would ensure that they would have a better quality of life as they have more control and knowledge of their finances. 

 

Fraud Protection

Your child’s credit report will be the most attractive file for identity thieves. Unfortunately, child identity theft can go on for so long without notice. Ensure that you make plans and actions to ensure your child’s protection. 

 

Credit building 

As a parent, you can start helping your child have a good credit rating. Registering your child as an authorized user of your credit would help them build a good credit rating in the long run. This would help your child have a brighter financial start-up once they can already handle their credit and finances.

 

Preschool and early elementary

You can begin teaching your kid the most basic financial concepts early. It is best to incorporate fun activities and real-life experiences to maximize teaching money lessons to kids. For instance, buying them play money and playing “house games” involving financial literacy would help them understand the concepts better.

 

Basic financial concepts

 

Different Types of Money

There are many types of money, and teaching them all to a 3-6-year-old child would be intimidating. Instead, start teaching them by introducing the different values of money and currency. 

 

Teach your child the concepts of coins and bills. Let them understand the value of money, like how one hundred pennies is equivalent to one dollar, twenty nickels make up a dollar, etc. 

 

Purpose of Money

Teach your child the purpose of money: buying items for needs, saving to have an easier life, and especially an instrument to provide and help other people. There are various ways to teach your child the purpose of money.

 

You can go shopping with them to give them a real-life experience of spending. Letting your child witness how you help others by doing good deeds with money would also help them learn the importance of giving. 

 

How to get more money

Your child needs to learn that money is limited and earned. Learning this at a young age would make them wise in managing their finances when they grow up. You can teach them this concept by explaining your work, other people’s work, and how they earn money.

 

Financial habits

Good financial habits established at a young age would be one of the keys to attaining financial success in the future. Let your child develop the three important financial habits starting from this stage.

 

Spending habits

Your child must learn about the importance and impact of spending. Realizing that money is limited, they should be able to understand that excessive spending is not good. You can teach them by letting them choose between two toys explaining that buying everything is not possible.

 

Saving habits 

The idea of saving can be quite a challenge when you teach them to your child. However, letting them know the power of saving at a very young age would help them in the long run. You can teach your child how to save money by telling them that saving would let them buy more toys in the future.

 

Sharing habits 

Teach your child that money is an instrument also to help other people. Let the child practice sharing habits such as buying gifts for someone homeless or in need. 

 

Three Jar Method

The three jar method is an effective way for your child to practice the three financial habits: saving, spending, and sharing. Teach your child how to do the three jar method by putting up three jars and labeling them “save,” “spend,” and “share,” respectively. Let your child divide any money he receives and put money on each jar, regardless of the ratio. 

 

Elementary school

Incorporate an appropriate level of financial literacy for elementary students as your child progresses. Educate your child, leaning toward more financial responsibility and spending habits. 

 

Saving habits 

 

Opening a savings account

You can start helping your child understand the power of saving by opening a savings account. Many banks offer kid-friendly accounts that your child can use to start his saving journey.

 

Savings jars 

Sometimes, the idea that your money is growing over time as you keep on saving can motivate the child. If he sees that the jars are slowly becoming full, he may start trying to love the idea of saving money. You can also set up jars intended to save enough money to buy your child’s wants and let him be the one to put money in them. 

 

Matching Contributions 

As a parent, you can also try to make matching contributions to your child. This would help them learn about contributions and understand better as they grow up at an early age. 

 

Spending habits 

 

Price Comparison

Teaching your child how to do price comparisons would improve their spending habits. Let your child also know that the quality and quantity of the product are important. To do this, let your child be able to read price tags and compare products with different qualities, and explain why a product can be better or worse than the other one. 

 

Sales and Coupons 

Let your child understand that sometimes buying in bulk orders would be a wise move because of sales and coupons. Introduce the existence of discounts and coupons where they can cut them from a list or brochure to avail discounts during the next purchase. 

 

Buyer’s Remorse

Your child would not be able to control their spending urges at a young age. As a parent, educate them about the buyer’s remorse. The best way to address this is to let them buy the item with their own money and calmly teach them about compulsive shopping at home.

 

Financial Responsibility 

 

Traditional Allowance 

Even if you give allowance to your kids, you should still teach them that it is not exactly “free money.” Try to let your child practice financial responsibility by dividing and allocating the allowance for different purposes, like using the three jar method. 

 

Earnings from extra chores 

Let your child realize the idea of earning money as well. This would help them understand the concept of working. Encourage your child to do extra chores and give them money as a reward. However, ensure that only extra tasks would be considered, not their actual responsibilities,  such as cleaning their room, taking trash, etc. 

 

Multi-item budgeting

Multi-item budgeting involves a parent giving a child their money. However, the money must be budgeted according to different categories like food, toys, and other needs or wants. If a child overspends and runs out of money, the parent would pay for the excess expenses, but the child would need to pay back the debt. 

 

Middle school and junior high

At ages 11-13, your child is old enough to learn basic credit-related concepts such as interest and debt. You should also teach your child to protect his personal information and data against cybercrimes like child identity theft.

 

Credit-related concepts 

 

Compounding interest 

Learning the power of compounding interest at a young age would let your child meet its first-long term goal early. Teaching the concept could be quite hard for parents, so make sure that you use the available resources found online. 

 

Debt 

The best teaching method you can give to your child for debt is real-life experience. Loan your child an amount of money to buy them whatever they want. Introduce the concept of payment terms such as monthly payments to pay back the loan. 

 

Budgeting habits

 

Allocating funds 

You can try to teach your child about the different budget allocations and use your family’s budget plan and teach the child the ins and outs of it. This would help your kid understand the importance and concept of budgeting better. 

 

Try to give your child a budget sheet for kids, too, to start planning out how they can allocate their funds and manage their finances well. 

 

Timely Bill Payment 

Paying bills on time is an essential lesson your child needs, especially for adulthood. Teach your child the different methods of bill tracking due, such as making use of a calendar, whiteboard, a spreadsheet, or setting up a reminder.  

 

You should also discuss the pros of paying bills on time and the consequences of paying them late, such as the penalties that can be charged. 

 

Provide a sample budget for a pre-teen

There are many ways you can introduce budgeting to your kid. You can start by discussing priorities, needs, and wants. At best, you can provide a sample budget plan depending on their preferred categories and expenses.

 

Financial Fraud 

 

Data Hygiene 

At this age, your child will most likely engage more in gadgets. You should teach your child the importance of practicing data hygiene by this time. Data hygiene involves protecting personal information and keeping the data clean, accurate, and updated. 

 

Parents should teach their children how to handle thier personal information: they should never disclose too much information on social media, they should be careful whenever there are online giveaways that seem too suspicious and so on. 

 

Teach your child that online pop-ups should never be clicked as they could lead to malicious sites that can put your child’s identity at risk. Tell your child to always be mindful when using shared computers or devices and never save any personal information.

 

Scams 

Scams are widely rampant nowadays. Educate your child about the consequences of engaging in a scam and its warning signs, such as being too suspicious or too good to be true. 

 

High school

Financial literacy for high school students involves a lot of complex concepts. The topics would center around solid personal finance, credit literacy, and how to manage their credit correctly. 

 

Personal finances 

 

Budgeting 

By the time your child has a regular job, it is your job as a parent to supervise how they handle their money, such as budgeting. Budgeting is both a skill and discipline, so it is essential that before they turn into adults, your child already has a solid budgeting foundation. 

 

Banking 

High school students must already have a checking account for their employment salary. Educate your child about different kinds of accounts, mobile applications, and more. Your child is also old enough to have a debit card, so you can educate them about debit and credit concepts to solidify personal finance for kids.

 

Credit Literacy

 

Credit scores

Educate your child on the actual value of knowing their credit score. Let them realize the consequences of having good credit and bad credit. Let them understand that lenders check an individual’s credit score as it tells about their payment behavior. They typically check four main things in an individual:

 

  1. on-time payments, which tell about the history of loan and credit card payments; 
  2. credit utilization, whereas if the person has high utilization, lenders charge higher interest; 
  3. inquiries are pulled credit reports that make lenders penalize people with many inquiries in a short period; and 
  4. credit lines, which tell the different lines and types of credit a person might have.

 

Credit vs. debit cards 

Open-ended credit can be used repeatedly as long as it’s not yet reaching its limit. Payments can be monthly and only in a minimum amount, instead of the full balance. Educate your child about the difference between credit and debit cards, and tell them that credit cards may come in different types.

 

  1. Reward credit cards are the normal credit card where the interest rate is based on your child’s credit score. When making a credit purchase, a reward is earned in many forms like cashback.
  2. Store credit cards encourage the user to spend more, and purchases usually come with discounts or rewards. They tend to have a “Visa” brand and often charge higher interest rates that reward credit cards.
  3. Secured credit cards have high-interest rates and fees. This is because it has a refundable security deposit, allowing the companies to help people with poor credit ratings.
  4. Student credit cards are typically offered to college students, and they have hefty interest rates and fees. 

 

Close-ended loans 

Close-ended loans are usually paid back in installments and are given to a borrower with a particular purpose and duration. Let your child understand the common types of close-ended loans:

 

  1. Mortgages are loans to buy a home that typically have long-term payments from 10 to 40 years. 
  2. Auto Loans can either be with a bank, a credit union, or in a direct dealership of your purchase. Interest rates may vary depending on the lender, like lower in banks or credit unions but high in dealerships. 
  3. Student Loans are used to fund your child’s educational plan in college. They are private or federally funded, which offers lower interest rates and may be subsidized.
  4. Payday Loans use the borrower’s upcoming paycheck to pay the credit. These are secured loans but offer a high-interest rate to the consumer. 

 

Proper credit usage

 

Children’s credit cards may either break or make your child’s credit rating. They must understand its proper usage before getting their first card in life. Educate them on when they can use their credit card and how to use them properly.

 

Payments 

High school students must learn the importance of missing payments on loans. As a parent, you can use a recent credit card statement to teach them the ins and outs of paying for their credit card. 

 

Credit Usage Guidelines 

Discuss with your child how they can use their credit cards. It is always important to tell them that credit cards are not extra money they can use. Educate your child about the common ways they can use their credit cards. Consider the following points:

 

  1. People use their credit cards often as payday loans when they don’t have the money. They make purchases of things they don’t have the money for just because they are either in need or impatient.
  2. Credit cards can be used for emergency fund purposes. When unexpected expenses arise, people temporarily use their credit cards to pay for them. 
  3. People with good spending habits can take advantage of their credit card rewards. Since they will most likely pay them on time, they can avoid interest and maximize discounts or cashback that their cards can offer.
  4. Knowing how to use a credit card properly would ensure a good credit rating. In addition, if the user is responsible, using credit cards is advantageous for building credit. 

 

Establishing credit before graduation

There are ways for a parent to help them build a good credit rating, even in high school. You can also use this to help and teach your child how to build credit for the first time, giving them a headstart once they graduate. 

 

Authorized User 

Putting your child as an authorized user would help them build credit. However, you must know that there are pros and cons to having them as an authorized user.

 

For pros, your child can have good credit before their graduation. They can also learn how to spend and use credit cards before leaving home. 

 

If credit is misused, you are responsible for paying their loans and charges because you’re the card owner. You might also risk your credit card information, or it could lead to bad spending habits because of careless usage. 

 

Tips to minimize risks

You can limit the risks of putting your child as your authorized user. Here are some ways that may help you teach and monitor your child’s spending behavior better.

 

  1. Don’t use a primary account; instead, open another credit line with a low spending limit to minimize the risk of large debts. 
  2. Discuss a usage agreement with your child to educate them about the proper usage of credit cards. 
  3. Lastly, use a new account with a good credit history to minimize the risk of having a poor credit rating and teach your child from scratch how to build credit as a teenager.

 

Co-signing a loan 

Incorporating this strategy to help your child build a good credit history would be effective for large purchases. You can co-sign a loan with your child. However, make sure that you have discussed an agreement with them to minimize the risks of having problems in the long run.

 

Student’s first credit card

When choosing the first credit card for your child, make sure you have discussed with them the necessary things to consider, like the type, purpose, and many more. If credit cards are used wisely, they can help your child gain a huge advantage when they finally leave your home. 

 

Conclusion

  • Protecting your child’s identity and financial future would help them greatly when they become adults.

 

  • It is important as a parent to ensure that your child will have no problems like identity theft, bad credit, and debt when they leave your home to prepare for adulthood. 

Based on statistics in 2017, child identity theft victimizes around 1 million children on average, causing families to pay an estimated $540 million because of this crime.

Big Piggyy

"Show me the MONEY!!!" – Jerry Maguire

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