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Q: I struggle with trying to stay out of debt, but it's difficult! How do I instill that ideal in my two young kids?
A: Bravo for you wanting to teach your kids about debt while they're young. When our boys started sixth grade, my husband and I began in earnest to debt-proof them.
Our plan provided that at the start of each month, the kids would receive a portion of our household income to manage. We called it their "family salary."
This was, in fact, the money we would have spent on them anyway. By giving it to them to manage, it moved from our control to theirs. We wanted them to learn early about having to suffer the consequences of the choices we make with our money.
The boys had rules to follow about giving and saving. They had "responsibility lists" that listed all the things we would no longer pay for: kid stuff, like video games, stickers, extra school activities, treats, and birthday party gifts for their friends. If they wanted anything on the list in the future, they'd have to pay for it themselves.
Another rule was that we would allow no salary advances and no loans of any kind. Period. Not even for five minutes if the boy forgot to bring his own money and needed a quick loan until we got home. We had a zero-tolerance policy for debt, even though we were still working our way out?something our children weren't aware of at the time. The principle: Don't spend money you don't have. It's a simple rule that, when instilled in a child's heart and mind, will be there for life.
Already your children are aware that something called a credit card allows adults to get things before they have the money to pay for them. You want to counter this belief as soon as they're able to grasp it. Here's what they need to know:
1. A credit-card purchase creates a loan. You don't really own something you bought with a credit card until you pay the bill in full.
2. Responsible adults use a credit card as a tool to build a solid credit history, not to buy things because they don't have enough money.
3. If you buy something with a credit card and then pay it off in small monthly payments, you could end up paying for it three times! A $100 Blu-Ray player would take many years to pay off and cost about $300. Chances are the Blu-Ray player won't last as long as it takes to pay for it.
Teaching your kids to manage money in a way that is honoring to God will give them invaluable life lessons. And knowing that the kids will watch to see you do what you say is going to keep you on your toes!
Mary Hunt is a financial expert and author of Raising Financially Confident Kids.