It is really important for parents to give
the right message to their children about debt. Managing money well is such an
important life skill and while following form example can help children to some
extent, if [parents know that they are not being as wise as they should with
money or that their children do not really notice what they are doing
financially then a more formal approach might be necessary.
What age to start
It is good to start discussing money from a young age. As soon as children learn to count, they will be able to do simple money maths. They should start to learn about prices of things and how you need to have enough money to be able to afford things. Giving them pocket money and a money box can help you to teach them about how they can save up for things that they want if they do not spend their money right away. As they get older you can start to explain what sorts of things have to be paid for and how much they might cost. Once they are teenagers, they should have an understanding that sometimes borrowing is necessary but you need to be careful when you do borrow money.
Good and bad debt
You should then be able to have a conversation with them about good and bad debt. An example of a good debt would be something like a short term cash advance loan where a bad one would be a high interest credit card. They need to understand that while a lot of debt is not good there are debts which are for example getting a mortgage to buy a home. This is because although the borrowing is expensive, more money will be saved by not paying rent over the years that the home is owned. The same goes for a student loan when the increase in income that is gained from the qualification will outweigh the cost of the loan and the cost of the course. However, you still need to make sure that you can afford the repayments on the loans and borrow at the lowest cost possible.
Bad debt should be avoided. This is when
money is borrowed to buy items that are not necessary and perhaps the loan is
also expensive or the repayments are so high they are difficult to manage. It
is important that children are not scared of borrowing money but that they are
aware of the risks and that they should think carefully about their financial
If you have made financial mistakes then
tell the children about them. They will be able to learn from that. They will
also then discover that you are not perfect so they should perhaps not follow
your example when they decide how to manage their money. Many of us know what
we should be doing but find it difficult to stick to.
As they get older and start handling their own money then it is wise to gently encourage them to be sensible with it. Make sure that they have a savings account that they can use and talk to them about purchases they want to make and whether they are really sure that they want to spend the money. It can be wise to get them to wait a few weeks and think whether they really want that item and think about what else they could do with the money when they are older if they do not buy it. It can be good to tell them about regrets you have with regards to spending decisions that you made that turned out to be unwise.
It is important to try not to nag them or
be bossy here. Try to get them to think about their decision because then they
will be more likely to go through this thought process themselves when they are
older and no longer living at home. If you come over as domineering it may also
cause them to decide to go against what you say because they want to be
If you have been discussing money with them
since they were young, then this should be a lot easier as they will be used to
you discussing this sort of thing with you and they will be used to going
through this sort of thought process when they want to spend money.
Make sure that you are also available for
them when they do leave home. Do not be there for a handout if they need money
as this will not help them to learn how to manage their money just where to go
if they need extra. Help them to budget and spend less and earn more so that
they are able to support themselves. This will enable them to be independent of
you and they will need to learn this as you will not be able to help them