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Kids and Debt: Teaching Financial Responsibility

by SecureLoanConsolidation

As soon as your child turns eighteen, they will be bombarded with credit card offers. Credit card companies depend on teenagers and young adults being oblivious to the dangers of credit card debt and how it can affect their finances for the rest of their lives. However, children can learn about debt and making smart financial decisions well before they are ready to go to college or enter the job field.

Depending on the age of your child, you can begin introducing and explaining the concept of debt at a relatively young age. It can be highly advantageous to pay a child for doing extra jobs around the house. The concept of working equaling pay is a good ethic to teach your kids early on. When they do receive their reward, the money can be split into two or three categories; save, spend and charity. When they receive money from a birthday or other occasions besides working for it, allow them to decide if and how they would like to split it into the categories.

The savings category could be a piggy bank where they can see their money building up over time or if they are old enough a bank account that is used for long-term goals and purchases. The spending category can be the amount they are allowed to spend on items of their choice. If they would like an item that costs more than the amount they have, they can wait a few weeks until they have enough or borrow it from their savings. The money borrowed from savings should be replaced incrementally in the following weeks. The charity category is optional. If this is a value you would like to instill in your child, you can sit down together and pick a favorite charity or advocacy group. Money can then be donated on a weekly or monthly basis.

By teaching your child how to be responsible with his or her money early on, you are setting them up for a lifetime of smart financial decisions. The basic concepts of credit card debt can be applied to your child's money as they become old enough and mature enough to understand. When they borrow money from their savings, interest rates can be applied, so they begin to understand borrowing money ends up costing more than buying the product outright.

When your child hits his or her early teenage years, spending money can be put on a pre-paid debit card. In today's swipe-happy times it can be beneficial to acclimate them to using plastic instead of cash. This allows them to begin understanding that although they do not have the cash physically in their hand, each time that card is swiped, it still represents real money and there are real results. Studies have shown that consumers using credit cards spend up to twenty percent more than customers paying with other payment methods.

Many adults find themselves in debt and find it difficult to teach these concepts to their children. However, to give your children the best chance at staying out of serious and crippling debt, it is best to introduce these concepts early on. Use them as teaching tools and keep them age-appropriate. A five year-old will not understand using a plastic card to buy something he or she wants, but they will understand that they do not have enough money in their piggy bank, so they will have to wait a few weeks until they do.

Setting financial goals are great learning tools for a child as well. From time to time allow them to choose an item from the store or online that they would like, but do not have enough money for and then have them save up their spending money for that specific item. Explain how in abstaining from using their spending money and saving it, they can purchase the item without having to borrow the money. When they do borrow money from their savings money, always charge interest in order for them to understand, it ends up costing more money to borrow money.

Use real life examples to explain debt as well. The news is full of talk about economics. Recession, debt, credit card debt, debt ceiling, bankruptcy and other financial terms are heard on a daily basis these days. Use language they can understand to explain any terms they do hear and help them to understand how it applies to their money. This is something they will carry with them for the rest of their lives.

It may seem counter-productive, but allow your child to screw up and make mistakes. Everybody makes a poor financial decision at some point in their lives, but it is important to know how to get out of the situation and regain solid financial footing, so it does not snowball into something catastrophic.

You can also involve your pre-teens with planning a family budget. Have them help you figure out income to expenses ratio and then how to budget the money, so all the essentials are paid first. One important budget concept to teach them is rent or mortgage always comes first, then utility bills, grocery bills next and so on.

Life itself is a learning experience, but it does not begin when your child leaves home for the first time. Your child can learn the basics of making responsible financial decisions early on and they will carry that teaching on through their adult life.

About the Author
SecureLoanConsolidation is an online resource available for both borrowers and lenders throughout the nation. In order to learn more about credit card debt and how to improve your credit score, visit


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