I was chatting casually with a neighbour recently about how their grandchildren were visiting for the summer and the conversation turned to how proud they were that they were helping teach their grand-kids (one boy and one girl) about debt. A little background as to why this is such an interesting story. Both of these people are retired from the banking industry. They were especially keen on making sure their children, and their grandchildren, were wise in the ways of spending and money management.
As they told it, they were paying the kids to do chores around the house. All good and something apparently that happens at home as well. Next came a conversation about how great it was that their grandchildren also understood what debt was. Apparently the kids ‘borrow’ money from mom & dad rather frequently to buy what they don’t have the money to pay for yet. This summer’s purchase was two new skateboards. Each borrowed $40 from their parents and have been paying it off weekly over the summer. This is good because it teaches young children that debt is something that has to be repaid over time.
Lesson Learned #1: Borrowed money has to be repaid on a timetable.
It became apparent the parents took this a little further — even charging interest. This came up when the grand-daughter asked to borrow $20 from Gramma for something she saw at a store but asked “and you won’t charge me interest will you Gramma because Mom does.”
Koodo’s to those parents. Buying things using debt makes things cost more and the sooner you learn that lesson the more likely you will think very carefully before borrowing money to buy something you can’t afford yet.
Lesson Learned 2: Buying things with credit costs more.
I asked my neighbour what she did about the $20. Being the loving Gramma that she is, she agreed to loan her grand-daughter the $20, interest free, to be paid back with some extra chores during the visit. I can’t help but think she missed a great opportunity for a third lesson about debt. You shouldn’t borrow more money before you’ve paid off your existing debt. Instead her grand-daughter was learning the lessons of consumption. I want, but I can’t afford, so I will borrow. Perhaps buried in there is also a question as to why the kids didn’t have any savings they could use. Learning about debt is good, but learning not to use debt is even better.
Lesson Lost: Don’t rely on credit to fund your lifestyle.
We live in a credit society. If you don’t want your kids to overuse credit, it’s important to start some debt lessons early. Do you teach your kids about debt as part of their money management skills?