Debt burdens a lot of people and is keeping so many of us from reaching our desire of financial freedom. It’s keeping us from properly contributing to our children’s education if we choose to do so. It’s keeping us from retiring early and being able to live off passive income.
So, why do I want to talk about debt and kids today?
Well, for the most part, I want to talk about it because I grew up thinking debt was okay. The people around me were consumers of debt more than they were consumers of plain ole drinking water. It was completely normal to hear the adults talking about a maxed out credit cards or taking a personal loan out to purchase Christmas gifts.
Let me tell you, this is not the business.
Bankruptcy, loans, credit cards, and check cashing should not make up the financial vocabulary of any child. At the same time, we can’t avoid talking about debt with children either. Children are pretty smart little beings and they are more intuitive than we give them credit for. If I felt like debt was normal, how do you think I felt about a life without debt? I felt life without it would be pretty dull and boring.
Children shouldn’t perceive debt as a way to get anything they want without understanding the consequences associated with it. Anything that provides instant gratification will excite a child if you don’t teach them the value of patience. If we avoid teaching them anything about debt, the worst that could happen is they grow up thinking debt is a normal part of life like I did.
Should we talk to kids about our debt? If so, when?
I’ve heard both sides of the argument. Some say they won’t, some say they will at the right time, and some just flat out tell their kids, “’I’ve got bills.” I’m leaning on the side of telling kids when appropriate. I’ll explain…
Imagine facing foreclosure on your home and you don’t know whether you’re going to even be in your house in a month or two. In total innocence, your kid comes to you and asks you for a new toy and in frustration you tell them that you don’t have any money for it, let alone you can’t pay the mortgage and don’t even know if you all will have a place to live in the next month or so.
For a five or six-year-old, that’s pretty scary stuff, right?
Yes, kids need to be taught about debt at some point, but scaring the crap out of them because of our bad financial decisions isn’t going to help them learn any better. Children need to feel secure, but if you’re struggling, I’m pretty sure your smart as a whip kiddo has already picked up on it.
Even though kids may pick up on some of your financial tensions, sharing with them at a more appropriate time gives you the opportunity to explain the reason behind the debt and how someone can overcome it — all without scaring them. Children need to understand the consequences of debt and they will learn best from practical parents who are willing to share their wisdom on the topic at an appropriate age.
Talking to Kids About Debt In Ways They Will Understand
If you choose it appropriate to share with your children your debt situation, this doesn’t mean you have to make them privy to everything concerning your finances. A simple response like, “Mommy and Daddy are still paying for our house (the physical structure).” Or, “This is our home (family’s safe place to live), but we have to pay the bank for it.”
Around age 12 or so, a child will probably be able to identify the differences between a house and home. I personally defined house and home this way because, to me, there are houses everywhere. However, there is only one home. A home is a safe place where I stay with my children. A home can be anywhere. Explain this in a way children can understand.
For younger children (5 years or so), you could explain debt in terms of borrowing. For instance, “Baby brother wants to borrow your bear, so you should loan it to him… Mommy and Daddy are borrowing their car until they’ve paid for all of it.” These are non-confusing scenarios that help them begin to understand terms such as borrowing, and loans. Eventually, they’ll be able to connect the dots with debt. Even if you’re not in debt and just want to explain what debt is, these scenarios are helpful. You could just change the wording to, “Sometimes people borrow their car until they’ve paid for all of it.”
No debt, a little debt, or a lot of debt. It doesn’t matter. Make sure you teach them.
When we don’t teach our kids about something, they eventually learn it from somewhere. The advantages of teaching them yourself is that you can control the message and shape the learning experience. Regardless of anyone’s debt situation, our actions teach children more than our circumstances.
Our attitudes towards money and debt influence the decisions our children will eventually make. I grew up around individuals that consumed debt like it was a normal thing to do; therefore, when I grew up, getting a credit card or student loan didn’t make me flinch. The flinching started when I realized I was in over my head and couldn’t afford the things I purchased on credit.
Sometimes it takes a cold lesson in reality to wake us up. If I was taught about the nasty effects of debt, who knows, the outcome might have been different. It is my goal when I eventually talk about debt with my daughter that my experience and knowledge about the dangers will prevent her from making similar mistakes.
If I want my lessons to be meaningful, I have to continue to adjust my mindset towards debt and money. I have to show my children that money has a proper place in life. I have to show them that I’m putting forth an effort to learn from my mistakes and eliminate my debt. If I do it right, they will see the hard work and sacrifice made and learn how to make better decisions based on the actions they see me take.
Set an example and prepare them for what is ahead.
Even if we teach them everything we know, we must be prepared to allow them to make their own mistakes. To lessen the effects of certain mistakes, we can properly equip them with what they will need to be successful along their financial journey.
At the minimum, do the following:
- Teach them to budget their money and live within their means.
- If something is not within their means, teach them to save until what they want is affordable.
- Set a good example. If you’re in debt, work towards paying it off. If you’re not, work towards building wealth.
- Explain how credit works. Tell kids what happens with interest when they borrow. Also, tell them what happens when they default.
- Make sure your kids know the difference between things we need and things we want.
- When they make money mistakes, avoid guilt, but allow them to feel the effects of their decision. This is how we all learn.
There’s one thing I’m learning as I prepare to educate my children on finances and debt, and that is, I don’t know everything. It wasn’t too long ago that I decided to improve my financial health. I can’t expect to do everything right the first time and neither should you. The best we can all do is take what we do know and try to grow from it. With those lessons, we teach our children so that we can improve the finances and legacy of the generations of those coming behind us.
If talking money and debt is a foreign and scary concept for you, I found a great resource that has been very helpful as I prepare my daughter for her financial education. I hope you will find it as useful. Also, be sure to check out this book, Raising Financially Confident Kids by Mary Hunt.
If you don’t remember anything else I’ve shared with you today, remember that our kids will learn about debt one way or the other. Do we want them to learn when it’s too late? If your answer is no, keep educating yourself and educate your children as you learn.
Are you going to talk to your kids about debt? If so, what age do you think you’ll share with them your reality with debt?
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