How to Talk to Your Kids About Money and Debt

Most parents just don’t talk to their kids about money. It’s no surprise. Many people are uncomfortable talking about it.

A survey from the American Psychological Association found that 60% of respondents said money was a major stressor in their life.1 But if you want your child to have a better chance to build a stable financial future and not pass on potential money stresses, the best thing you can do is introduce them to core topics early on. That means talking about debt—the good, the bad and the ugly.

Say money is a major stressor

Thankfully, these conversations don’t have to be a slog. Here are some constructive ways to broach the subject.

Talk About Your Own Debt

Share your own debt journey with your kids to teach by example. Whether you've had student loans, credit card debt, auto loans or a mortgage, your experience can highlight the real consequences of living with debt.

  • Talk about how you’re paying back the debt. Include any lending mistakes you made and what you gave up to lower your debt or become debt-free.
  • Explain how debt works, including interest rates, monthly payments and terms. If you refinance a loan at a lower interest rate, describe that process and how much money you’ll save. This can also be a good math lesson for school-age children.
  • Download a visual aid and mark off every time you repay a certain amount. Stick it on your fridge and show your kids every time you pay off a chunk. This will teach them how long it takes to pay off debt and how good it feels to reach your goal.
  • Take the time to celebrate when you pay off a debt or when the balance dips below a certain threshold. This helps your kids understand that it’s okay to reward yourself for small victories. For example, you could go on a family camping trip or grab dinner at a favorite restaurant.

Teach Them How to Pay Off Debt

Imagine this: One day, your child asks you to buy them a new video game. Instead of shelling out $60 and calling it a gift, you decide to have them pay for the game with their own money. The problem is, your child doesn’t have enough money saved up to afford it.

So, you give them a loan. It may sound too good to be true, but one of the best ways to teach your child about debt is…well, to give them some debt. This will give them a chance to navigate the ins and outs of credit in a safe, supervised fashion.

When you give your child a loan, write it out in plain terms. Decide how they can pay it back and how much interest you’ll charge. They could give up their weekly allowance or do extra chores around the house, for example. Remember, even young kids can load a dishwasher, fold laundry or vacuum the floors.

Paying off debt is hard, and you should not take it on unless you’re prepared to pay it off. 

You could also consider your child starting a lemonade stand or hosting a bake sale. They could sell any toys, books and clothes they don’t use. If you want to have a yard sale, you could allow them to sell their own things and put that money toward the loan balance.

At some point during this process, your child may get tired of owing you money and beg you to wipe out the remaining balance.

This is the most important teachable moment of all–showing them what it takes to pay off debt, and what it feels like to owe money. If you erase the debt just when things start to get tough, they won’t learn the lesson. Paying off debt is hard, and you should not take it on unless you’re prepared to pay it off.

Talk About Future Expenses

While it’s easy to lend your child $50 so they can buy a toy or game, it’s much harder to front them the money for a car. Even if your child is years away from needing a vehicle, use this time to help them start saving for it. Show them how to deposit birthday or holiday checks and summer job income into a savings account designated for big purchases.

You can also talk about college costs, especially if your kids will have to pay part or all of their expenses. If you can show them how it feels to owe money, they’ll be more inclined to minimize student loans. They’ll also have incentive to apply for scholarships, choose a more affordable school or work a part-time job. 

Student loans can affect post-grad choices. Using your own life as an example, show them how reducing student debt could make their life a whole lot smoother.

Talking about debt and money today can help to create more healthy spending habits in the future. 

Does College = Debt?

If you’re thinking about college and how to save for it, let’s talk.

1American Psychological Association, Stress in America: Stress and Current Events, 2019.  

This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

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