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Times of crisis always open our eyes for the better. For example, when you’re struggling to get a loan with bad credit to pay for emergency expenses, you may wish that you’d made better financial choices.
As working professionals or adults, many of us find it difficult to handle our finances, primarily due to a lack of formal financial education or exposure. While most parents teach their children about good manners and being kind and honest, no one talks about money and finances.
If you want to prepare your children for their future, so that they can make financially savvy decisions, then you must proactively start teaching them about debt. Credit is the most important financial tool that every adult must know, and because of its complexities, it’s best to start learning about it from an early age.
If you find it challenging to talk to your child about money and credit, this guide will help you. Let’s look at some easy and age-appropriate ways to teach children about debt.
1. Give Them Actual Money
One great way to teach kids about money is by giving them some. This can be pocket money or money you pay them for doing chores around the house. At the beginning of the month, pay them the full amount and then tell them that anything that they want to do or buy must be bought using the money they earned.
After using up their allowance in the first few weeks, your children may start to demand more. This will be your opportunity to teach about credit, debt and budgeting.
For instance, if you give them £5 to purchase school supplies, you will need to explain that they will either have to repay the money the following month when they receive their “salary” or pocket money, or you will deduct it over the following months. This may seem harsh at first, but it will teach them about credit and budgeting.
2. Tell Them to Buy What They Want
Has your child been demanding a new video game or toy? While you can always buy it for them, the best way to go about it is to tell them to buy it themselves. It will give them a sense of maturity and increase their appreciation for the product. This will also prove to be a great opportunity to teach them about debt and credit.
Take, for example, a scenario where your child wants a game that costs £40, and they have saved £30. Now, they can either wait till they’ve saved £10 or they can borrow from you. You could say that they have five months to repay the “credit” amount borrowed, plus an additional fifty pounds for “interest.”
Explain the concept and give them time to think about it before deciding.
3. Making Them Part of Your Financial Choices
If you have an older child or teenager, you can make them a part of an important financial decision. For example, if you’re buying a new car, take them with you to the dealership. Don’t let them wander off after they’ve helped you choose the make and model of the car. Rather, ask them to sit with you as you go over the terms of financing and the loan.
This will give them real-life exposure to loans and debt. If you have a teenager, you can also ask them to research for you the best auto loans online. This will help them feel responsible and also bring about a controlled exposure to world finance and debt.
4. Lead By Example
The best way to teach children about anything, whether it’s debt or good behaviour, is through example. Once your child is over the age of 10-11 years, make them part of your monthly budget. Talk to them as young adults. Tell them how you make a budget and stick to it, show them how you save money, and what happens when you fall short of money.
Kids these days are extremely proficient with technology; you can ask them to create an Excel sheet and help you track your grocery budget for the month. When you lead by example, your kids automatically inculcate the habits, and they become financially literate adults.
In Summary
Financial literacy has become key to surviving in this modern world and by starting from an early age, you are preparing your children to better navigate the economic challenges. As parents, you’ll always have your child’s back and will want to give them the best of everything.
However, without sounding macabre, you need to remember that you’ll not always be around, but your teachings will. They can pass on this knowledge to their children in the distant future.
Are you teaching financial literacy to your child?