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Parents either scare children away from borrowing by excessively highlighting the negative consequences of debt, based on their own experiences — or they don’t talk about it at all. However, since most adults have to borrow at some point in time, it’s important to teach children about borrowing responsibly.

Have a child pay off a purchase that parents make for them. For example, the parent may buy a book or toy for the child, then require the child to make payments until the balance is gone. The parents could even charge interest — such as 10 cents per $5 borrowed — to help them grasp the concept. After children have a solid grasp on budgeting, parents can allow them to borrow real cash and pay it off with weekly or monthly payments.

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For even more accuracy about the process, parents can set dates of payment on any borrowed money and evaluate the child on how well he or she does at paying back the full balance in a timely fashion.

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By the time kids are in high school, they may be ready to start using a credit card. Since they won’t be old enough to get their own, some parents may want to make them an authorized user on their own credit card and allow them to make and pay off charges when deemed appropriate. Or, if parents don’t feel their children are ready to use a credit card, the teens can use a prepaid card, which will still give parents the opportunity to go over the statement and spending habits with their offspring.

4.) Credit reports are a ‘report card’ no one can dodge. Credit is a challenging concept for anyone to grasp, but kids become financially literate when they learn about this. Parents can explain that adults are “graded” on the strength of their borrowing habits. Their grades are reported in two ways: First, they’re noted on credit reports, which detail everything credit-related; then adults are given credit scores, which provide a number grade based on their credit reports — just as a child’s school GPA is based on a report card.

Parents should emphasize that as adults’ credit habits change, so do their credit reports. If parents feel comfortable with their own credit, they can use their personal credit reports and scores as examples; otherwise, sample reports are fine.

Related: The Secrets of Family Financial Fitness

Children should also understand that good credit is essential to adult life, as it can impact everything from whether or not they can get a credit card or buy a house to how much they will pay for their utilities — even if they land a good job.

Michael Osakwe is a NextAdvisor.com writer who covers a multitude of personal finance topics.