Teach kids about borrowing money
These days borrowing money has become second nature. You can borrow money from a bank to buy a house or a car. Or you might use a credit card to pay for different living expenses. It's important for children to understand the basics about borrowing money from an early age. The biggest lesson to teach kids about borrowing money is that it has to be paid back. Most often with interest on top.
A simple way to teach kids about borrowing is to use examples like borrowing a library book, a DVD from a store or a toy from a friend and then returning it. You can take older kids for a trip to the bank. Explain that a bank can lend you money to buy things now, but that you don't get it for free because it costs you extra money – in the form of interest – to borrow money from the bank.
TIP!If you have borrowed money to buy a home or car for example, you can show your kids that you have to repay the money with interest every month.
Credit cards have become part of many families' lives. If you have one your kids have probably watched you use it to pay for groceries at the supermarket, a new pair of shoes or a meal at a restaurant. Talking to your kids about how credit cards work is another way to teach them about borrowing money. For example, let your kids know that a credit card gives you access to money to buy things but that you have to pay the money back. Anything that you buy on a credit card will cost you more – because interest will be added - if you don't pay the money back on time.Sit down with your kids and show them a credit card bill. Point out your purchases, the amount of money the repayment, and the bill's due date. If interest has been added to the bill make sure you show the kids.
Your kids also need to learn about when it's worth borrowing money and when it’s not. A lot of the time, your kids might be better off saving to buy what they want instead of borrowing money and paying it back – with interest – over time. Put simply, if your kids want money for a book, for example, you might lend them the money. If they want to buy chocolate you might think twice about lending them the money!
If your child wants to borrow money from you, talk to them about why they want it. If you decide to lend them the money, make an agreement with them that they have to pay it back over a few weeks. You can add a small amount of interest to the amount if you like – but don't make it too hard for them to repay the money!
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