"Most people learn about saving and spending, [but] not much about borrowing and investing," says Ted Rossman, an analyst at CreditCards.com. "We know interest can add up, but not a lot of people are aware of that."
Some 65% of respondents to a recent Creditcards.com survey said their parents taught them about saving, but only a quarter (25%) said their parents taught them about borrowing money and debt. The site polled 2,964 parents with children under 18.
Debt and borrowing money may not be easy topics to discuss, but the conversations can be important ones. Consumer debt exceeded $4 trillion nationwide as of June 2019. And overspending, even at an early age, can have long-term consequences on your finances.
Here are three simple ways experts say parents can teach their children about debt, even if you're not an expert yourself.
It's important to have money conversations with children as early as kindergarten, says Jill Gonzalez, communications director and analyst at WalletHub. Look for a relevant opportunity: When a kid asks for a particular toy, for example, or is eager to go to camp, begin by "going through the cost" with them. The idea isn't to shame them for wanting something that costs money; it's just to make them aware that there is a price to be paid, and you have to decide whether the price is worth it.
Approach the conversation using visuals and technology whenever possible, she adds, because kids rarely see adults handle cash.
Once your kids are a little older, say, middle-school age, you can start involving them in more depth. Rossman suggests bringing kids into budgeting conversations at that point, in part by highlighting the difference between needs and wants. Let's say you're going back-to-school shopping together. If they want both a new fall wardrobe and a new computer, you can talk through the implications and help them prioritize.
"Our financial personalities get shaped very early on and personal finance is such an important lesson parents can pass along," he says.
You can give kids a taste of how interest works when borrowing money by setting up a payment plan that acts like a credit card, says Rossman. For example, if your tween wants to buy a new pair of sneakers that cost $50, offer two payback methods: all at once, or once-a-month payments of $10 with a 20-cent interest charge each month.
If they choose once-a-month payments, they will pay $51 — which is $1 more than the original price.
Adding your teen as an authorized user on one of your credit cards can teach them about debt, interest, and building credit, says Gonzalez. They can get their own card as early as age 18 and more easily once they turn 21.
Having a credit card is a big responsibility, and one in 10 college students think a credit card is free money, according to a 2019 WalletHub College Student Financial Survey. Over a third, or 35%, of students also said their parents help pay their credit card bills.
"Credit building is a top priority," says Gonzalez. "A good credit score will save you or your child thousands of dollars on loans and insurance premiums." She suggests giving your teen authorized access on your credit card before turning 18, and then switching them to a student credit card with a credit line.
Monitor what's going on, but give them some room to experiment, she suggests. Making small mistakes, like overspending, can be a valuable lesson at an early age.
"That's a good chance for learning opportunities," Gonzalez says. "[To] talk through consequences, and ideally what that can do to a credit score."
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