The best debt lessons children can learn about money

Written by The ReReport
As seen in the Source link, written by on 2019-03-15 11:57:46

Debt is a dominant force in many households and keeping it secret from children is not a good idea, according to money specialists.

Discussions about debt can start before children begin school, says Rise High Financial Solutions director Marissa Schulze.

“It’s never too early for parents to start teaching their kids about being debt sensible,” she said.

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“When young kids see us paying with credit cards they don’t realise that’s money we have to pay back.”

Parents could explain this to children aged between three and six, Ms Schulze said.

Board games can help educate them, too.

media_cameraMarissa Schulze says it’s important to teach children about debt. Picture: Bianca De Marchi

Ms Schulze said while Monopoly was a great game to teach children about buying assets and building wealth, the Game of Life introduced the concept of debt.

“You can slowly increase their awareness and understanding of the fact that debt is a useful tool but needs to be taken on carefully,” she said.

“Parents are scared of talking to kids about debt, but often we underestimate how much our kids understand. I’m blown away by how much my children understand at six and eight.”

It was a good idea to show children electricity bills and credit card bills, Ms Schulze said.

And when shopping, give them opportunities to borrow money from mum and dad — perhaps with a small interest component — to buy things they really want.

media_cameraCertified financial planner Patrick Canion says parents should make debt lessons practical.

“It doesn’t matter who gives them the debt — parents or the bank — it’s the concept of taking money from someone else and knowing you have to pay it back,” Ms Schulze said.

Certified financial planner Patrick Canion said most families had debts to discuss.

“Having kids can impact the income of a family and might cause their debt to increase,” he said.

Parents should be careful when explaining debt to children, Mr Canion said. “You don’t want to scare kids — it can freak them out a bit.

“Explain that mum and dad have obligations. The next challenge is showing them the reality.”

“I’m a big fan of helping kids get either a small credit card or helping them buy something small using Afterpay so they get some practical experience.

“Money is so intangible and virtual, so give them a supervised experience.”

Mr Canion said many children were envious of things that others had, so parents should explain how debt often funded extravagant consumer lifestyles.

“A lot of people have things but it doesn’t mean they own them. Explain how many weeks it takes to pay off the item, with interest. Make it as practical as you can.”


Originally published as How to teach children about debt