Raising Money-Smart Kids- Part Three
Our job as parents is to prepare our kids to “launch” — to step into adult life ready for the challenges and opportunities ahead. Since finances play such a major role in building a stable future, one of the most important lessons we can give our children is how to manage money wisely.
In part two of our post series, we focused on the value of investing and growing their savings. In part three, we’ll focus on teaching kids the concepts of credit and debt.
Part 3: Credit and Debt
- The Basics- Like compounding interest, debt can be a powerful tool to create wealth and take advantage of opportunities- like buying a home or starting a business, but it can also create major setbacks if misused. That’s why it’s important to help kids understand the difference between the two:
- Credit: using someone else’s money now with the promise to pay it back later.
Debt: money you owe over a longer period of time, often involves an extra cost, like interest.
- Making it Real- Depending on the age of your child, use visual and real life examples to deepen their understanding.
- Younger children: create an IOU or Candy Credit game where you use snacks or candy as money to spend and borrow for a “special prize” or toy and have them back with a little extra (“interest”).
Pre-teens and Teens: If they want a video game or pair of shoes but don’t quite have enough saved, offer to “loan” them the difference. Then require them to pay it back with 5–10% more to illustrate how debt grows over time with “interest”.
- The Big Picture- Use examples from your own life to connect the dots:
- Buying gas and groceries with a credit card.
- Financing a car home.
Times you may not have used credit wisely.
- The Key Message- credit is a tool that can help them when used wisely, but if they borrow more than they can pay back, debt grows and makes life harder. This is a great reminder for adults too!
👉 In the final post of this series, we’ll cover teaching kids about Generosity and Responsibility.