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20 Critical Tips For Teaching Your Kids About Debt And Lending

Learning about science, history, and literature are all important things for kids and young adults, but getting a financial education is an equally important and, much more often ignored, part of the educational experience. While many schools have moved to make it part of their curriculum, parents can and should take matters into their own hands, helping kids learn about financial basics from a very early age. Of course, that’s easier said than done. Many parents are unsure of where to start or how to get across the most important points of smart financial planning. There is no single right method to financially educate your kids, but there are some ways that you can make it easier on yourself and ensure that you don’t miss any key points in the process. Here, we share some of those tips to give your kids the lowdown on debt, lending, and other financial basics so they’ll grow up to make smarter, more informed decisions with their money:
  1. Start young.

    It’s really never too early to start teaching your kids essential debt and lending principles. As soon as they’re able to understand money and how it’s used, you can start helping them understand the benefits of saving, avoiding debt, and managing money. Of course, it’s never too late to teach your kids about these topics either, and if you didn’t address them when they were young, make sure you give them an overview before sending them out into the real world.
  2. Help them build credit, with guidance.

    Kids in high school and college are often old enough (though individual maturity levels will vary) to start using credit cards, under parental supervision, of course. This can help them learn to use credit responsibly and start building a credit history. Many credit cards let parents and dependents share a single account, so it’s easy for parents to track spending.
  3. Set a good example.

    One of the best things any parent can do to help kids learn about debt and lending is to set a good example. Teach your kids good money management skills by exhibiting them yourself and explaining why you’re doing what you’re doing. Forgetting to pay your bills, racking up credit card debt, and misusing credit are likely to teach children some bad financial habits.
  4. Make the pitfalls of poor money management tangible.

    Money, especially credit and debt, can seem like pretty abstract concepts to kids, young and old alike. Make sure they understand the realities of what debt can mean by showing them in clear, tangible examples the pitfalls of running up a credit card, destroying a credit score, or other money mistakes. They’re much less likely to make these kinds of mistakes when they have such clear examples of what not to do.
  5. Encourage kids to live within their means.

    These days, it’s hard to escape advertisements, TV shows, and other forms of media that promote big spending and expensive products. Kids often want things that they or their parents simply can’t afford. Help them learn to understand that they don’t need everything they want and encourage them to spend their money wisely or to save it for a big purchase.
  6. Explain the difference between good and bad debts.

    Kids also need to learn that not all debts are necessarily bad. Some are investments, like buying a house or paying for a college education. Just make sure that they get that all debts, even the good kind, come with risks and responsibilities.
  7. Help your kids learn to save.

    Want your kids to avoid getting into debt? Then help them learn to save. Stressing the importance of this early on will help to establish a lifelong pattern and may even reduce their need to borrow funds later on.
  8. Don’t let kids borrow money without repayment terms in place.

    While there is nothing necessarily wrong with letting kids borrow money, make sure they understand when and how the money has to be repaid. This ensures that they understand they have to be responsible for the debts they incur and also that parents will see their money again.
  9. Explain interest.

    For many young spenders, it can be hard to understand that debt isn’t just as simple as borrowing a set amount of money. Kids need to understand how interest works and see, very clearly, how it will impact whatever debt they choose to incur.
  10. Review the child’s financial fitness each month.

    Get your kids and teens set up with a checking and savings account, and help them track their spending and saving. Each time the statement arrives, sit down with your child and review it so they know what the numbers mean and what kind of cash they have in the bank.
  11. Be transparent with your own finances.

    One of the easiest ways to help kids learn about finances is by letting them help you out with yours. Sit with them as you balance the checkbook, pay bills, and build a budget so they can learn in a real-world, hands-on setting.
  12. Show them the numbers.

    Kids might think it’s no big deal to charge a small sum on a credit card, but help them to learn just how much they can be paying in the long run if they start being charged interest on the card. Show them how much given sums will end up costing if they only pay the minimum, which is sure to be a wake-up call for many young people.
  13. Make early lessons fun.

    Money management and debt learning don’t have to be boring! Make a game out of lessons by using fake money or even playing Monopoly together as you explain the financial principles behind the game.
  14. Clearly define wants and needs.

    Even teens sometimes have a hard time differentiating between wants and needs. Give kids a little help by showing them what things qualify for each and stressing the importance of paying for needs before ever even addressing wants.
  15. Help even young children build a budget.

    Even young kids can learn the basics of budgeting if you ask them to allocate their allowance and gifted money to specific purposes. Help them learn to save, spend, and even donate to charity wisely. They’re likely to carry over similar practices once they’re out of the house.
  16. Set long-term goals.

    Kids tend to be focused on the present and often can’t put off gratification (this study with marshmallows confirms it), so it’s often hard to get them to see the bigger picture when it comes to money. Help your kids set long-term goals for themselves, either to save enough for a big purchase, a trip, or just to meet certain financial goals, that way they can start learning to see money outside of what it can get them today.
  17. Make sure they understand why financial management skills are important.

    Getting kids to care about skills they don’t see as immediately relevant to their lives (after all, mom and dad are still paying for pretty much everything they do) can be hard. Find ways to ensure that they understand the importance of building these skills, like allocating different parts of their allowance to savings and spending.
  18. Explain credit scores.

    Credit scores mean little to high school and college students and even less to younger kids. Yet they’re a pivotal part of adult life and can make the difference when trying to start a business, buy a home, or even get a car. Help kids to understand that every credit move they make impacts their score for better or worse, and help them learn things they should never do.
  19. Help them learn from mistakes.

    Even kids with the best financial education are going to make mistakes; it’s just part of growing up. Instead of making them feel bad for those mistakes (which they probably already do), help them to learn from those experiences, move on, and set themselves up for smart decisions down the line.
  20. Keep it simple, but don’t sugarcoat it.

    Kids don’t need an overly complex look at debt and lending to get the big picture, at least not until they’re a little older, but there’s no reason to take away from the seriousness of the issue even with younger kids. They need to learn that debt can have lifelong consequences, some of which are pretty unpleasant, and that what is most gratifying now may be harmful down the road.
  This article was first posted in Best Colleges.

This is an article contributed to Young Upstarts and published or republished here with permission. All rights of this work belong to the authors named in the article above.

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