In our previous lesson, “Choosing Wanting over Owing,” we went after a different perspective on teaching our financial life lessons for kids by giving actual examples of a conversation that would take place. Each of these conversations presented a choice between borrowing money to get what the child wants (going into debt) versus completing savings goals and waiting until the child could afford the purchase. Most importantly, this lesson included asking how they would feel if they owed someone – our lesson today explains further what debt really means.
“The chains of debt are too light to be felt until they’re too heavy to be broken.” -Warren Buffett
For Elementary Ages:
Ask your kids, “what is debt?” Let them stab at the answer for a while and then propose: Debt is a “promise to pay.” We want them to know that debt is not evil or bad. Debt is simply a responsibility, an agreement to pay what you owe. What is bad is making too many promises to pay. Why? Because the more you have to promise to pay others, the less you have to Give, Save or Live on.
“How does debt happen?” Debt happens when you can’t buy something with your own money because you don’t have enough. So, you ask for someone’s help to buy that something. If they agree to help, you “promise to pay” them back.
Here’s an example you can give your child: You want a toy that costs $20 but you only have $15. You ask Mom to help you buy the toy. Mom agrees to give you $5 to help you buy the toy — but you have to promise to pay her out of next month’s allowance.
Debt is a promise to pay.
For Middle Schoolers / Teens:
Ask your kids, “what is debt?” Let them stab at the answer for a while and then propose: Debt is a “promise to pay.” We want them to know that debt is not evil or bad. Debt is simply a responsibility, an agreement to pay what you owe. What is bad is making too many promises to pay. Why? Because the more you have to promise to pay others, the less you have to Give, Save or Live on.
“How does debt happen?” Debt happens when you can’t buy something with your own money because you don’t have enough. So, you ask for someone’s help to buy that something. If they agree to help, you “promise to pay” them back. When your parents bought the house, they needed the bank to help pay for it, so your parents promised to pay the bank back.
Here’s an example you might encounter: You want a game that costs $20 but you only have $15. You ask Mom to help you buy the game. Mom agrees to give you $5 to help you buy the game but you have to promise to pay her out of next month’s allowance.
Tips for Parents:
Stop “giving” your child money to help them if they are earning an allowance or salary. It may be more beneficial in the long run to offer them a low interest rate or a prolonged pay schedule. This gives you the opportunity to better teach the financial life lessons around what it means to incur debt: an important concept for their future!
Random Fun:
Put your kids in chairs. Fill a cup with a little water (don’t want to drench them) and one with confetti (shredded notebook paper works fine.) Place the cups on the table. The cup with water is “heads”. The cup with confetti is “tails”. Have each kid, one-by-one, flip a coin to test their fate. Play as many rounds as you’d like!
September 2019