Children become consumers nowadays at a very early age. It begins the first time they stand at the checkout counter. So, when should we start talking to our children about debt? As soon as they are old enough to understand that it costs money to buy that candy bar they see at the checkout counter and before we lose them to their internet device.
Money is not limitless
The most important way to avoid debt is by managing the money we have. This is an important skill we must pass on to our children. And remember the old adage: “actions speak louder than words.”
When our children are young, they have no idea where money comes from. They observe you pulling money out of your wallet, or handing over a credit or debit card to the cashier, but they have no idea what stands behind the card. They may even go with you to the ATM and watch as you withdraw money, but how did it get there? These concepts are beyond their young minds. Nevertheless, this is an excellent time to begin gently explaining that the money you are spending or withdrawing from the ATM is money that you put into the bank. Begin to convey the concept that money is earned.
When your child is older you can begin to let them observe you as you pay your bills, explaining the importance of paying bills on time. When they ask to use the credit card, take advantage of the opportunity to discuss how credit cards work, how much you already owe to the credit card company and the importance of maintaining a low balance.
Teach how to save and plan
The best way to teach your child about saving is to give them an allowance. Set the allowance to their age and separate it from household chores. Encourage your child to save her allowance in order to buy items, such as candy or trading cards, or when older, for the latest game for his game player. Give your child the freedom to make the spending decision, even if you disagree.
Once your child is a little older, you can encourage him or her to set aside a certain portion of his weekly allowance and invest it in a savings account, bonds or other small, but reliable investment instruments.
Loans and Debt
- Debt. Once your child hits his or her teenage years, they will soon be facing their first instrument of debt—the student loan. Perhaps around the same time, they may take on credit card debt, if you give them a credit card or add them to your account.
Later, hopefully, they will graduate school, find a great job and buy their first home. These represent the three major consumer debt: credit card, student loan and mortgage. Teach your child the difference between the primary categories of debt: consumer debt, which comes from purchasing all the fun stuff they want, and investment debt, which comes from loans for purchasing a home, or paying tuition, starting a business—basically expenditures which result in a return over time.
If you yourself are carrying a lot of debt, use it as a teaching moment to explain how it all began and point out the mistakes you made along the way. Share with your child the positive steps you are now taking to get your debt under control.
- Loans. The good news is that the lending market is not anything like it was when we started out. Back then, we pretty much had three options: the bank, credit union or our parents. Today these options are not so available. As parents, we probably cannot help out our children. Banks and credit unions are difficult to deal with, require a lot of paperwork, prefer collateral and probably also a co-signer. But this is no problem. Keeping pace with our children’s digital lifestyle, the lending market evolved to reach consumers where they live—on the internet.
Online loan platforms such as peer-to-peer or crowdfunding have stepped in where the banks once stood. It is the perfect loan resource for young people today. Our children use the internet for everything: to find out what is trendy, to shop for it, identify the best brand and price, check out product ratings through social media sites, and then buy on the spot, between texting, Facebooking, Twittering and watching YouTube.
As members of the millennial generation, our teenagers and young adults are the perfect candidates for the peer-to-peer lending platform. It speaks also to their concept of social good, since the peer-to-peer and crowdfunding platforms are all about people lending to people.
For convenience, ease and speediness, all of which is vitally important to young consumers, it does not get better than peer-to-peer lending. Spend time on the computer together learning about this fascinating and growing industry and help them to investigate the various providers and process for the easiest and safest way to move forward in life.
Talking about money matters can be stressful but if we begin at an early age and go slowly, by word and example, we can successfully build a good foundation for money management skills.