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Teaching Debt to Your Kids

Oct 19, 2007
It is somewhat surprising that in this day and age parents often overlook the importance of teaching their children about debt and how to use it safely and effectively. For most consumers, the old adage that nothing is certain in life except death and taxes can be amended to read: nothing in life is certain except death, taxes, and debt.

Think about your own circumstances. How often have you had to use credit? Homes, automobiles, furniture, the list goes on and on, and there is no reason to believe that your children will not have to use credit as they grow and begin their own families. As informed parents and consumers, you probably already know that millions of people find themselves in financial trouble, and a lot of this can be traced back to a lack of education in how to handle debt and credit responsibly.

It is not enough to assume that schools will teach your child what he or she will need to know when it comes to personal finances. The fact is that while schools will happily teach students the basics of commercial finance, they often overlook the most fundamental issue of all, and that is teaching a person how to handle his or her own, personal, finances.

So how do you go about teaching your child the basics of credit and debt? The best answer to that is through patience, diligence, and open communication.

The best time to start is when they are young and just beginning to learn math skills. The vast majority of math as it relates to debt and credit and money, in general, is basic math. In addition to adding, subtracting, multiplying, and dividing, teach your child how to use percentages and decimals. These are two of the most useful skills they learn when it comes to dealing with credit and debt. A great way to teach these skills is through the use of simple word problems.

An example might go like this: If I were to borrow $100 from you and paid you 8% interest, how much money would I have to pay you in total?

Once the child grasps this concept, you can add to it by asking, for example: How much would I owe you if I wanted to pay this off in monthly installments for one year?

An important aspect to teaching children about debt and credit is to bring it down to their level and to make it personal. Using words such as "I" and "you" allow the child to visualize the exchange in a much more personal way and that increases their interest in the learning session.

When a child has a firm understanding of the basics, you might want to bring out an old credit statement and go through it with them. For many children, the very first credit bill they see is their own! Explain some of the terminology and spend as much time as you need with them until they understand that credit is not free.

Giving your child an early exposure to credit and debt will help him or her later on in life in ways that cannot be measured. No parent wants to see their child in deep financial trouble and teaching a child early about credit and debt is one way to prevent that from happening.
About the Author
Peter Kenny is a writer for The Thrifty Scot, please visit us at Poor Credit Remortgage and Consolidation Loan
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