Talking to my daughters about money comes very naturally to me, but I recognize that some parents struggle to do so in a manner that doesn’t come across as a lecture. I find the best way to integrate money talks is to look for everyday teachable moments. This way you avoid the “after school special” vibe and instead have a normal conversation with your kids.
Debt is one of the hardest money conversations for most parents. It’s a subject we’d like to avoid, given our own sensitivity to the subject matter. As I mentioned before, we may not want our kids to experience debt, but most will in some shape or form. So let’s help them learn how to think about debt, so they know when to leverage it appropriately and when to avoid it.
How to Talk to Your Kids about Debt
This is an easy way to introduce your kids to consumer debt. Plus, it gives you the chance to demonstrate to them the importance of setting goals and prioritizing wants.
Step 1: Show Them How Wants Can Turn into Debt
Take your kids with you to the store when you have achieved a goal and saved money for something you want. Generally speaking, this works best if the goal is tangible and relatable to your kids (a gadget or purse, etc). Ideally it is something your kids will see you use often and not something that you use once, such as tickets to a concert or a sporting event. Once you’re at the store tell them:
“I’m so excited to buy [insert item] today. I’ve wanted this for a long time and I finally saved enough money to buy it. There was a time when I would have bought it right away, but that is a mistake I no longer make.”
Step 2: Let Them Learn from Your Mistakes
Unless your kids are exceptionally polite or not very curious, they will ask you about your mistake, which is what you want them to do. Even if they don’t ask, tell them anyways.
“I used to buy everything I wanted without taking the time to figure out if I really needed it and could afford it. Eventually, I ended up spending more money than I had. Do you know why that was a mistake?”
Let them answer. You may be surprised by what they think. Dialogue with them and confirm where their understanding of debt is correct and help them work through any flawed thinking, generally this is around not understanding how credit cards work and interest charges.
Step 3: Teach Them a Better Way to Handle Wants
The goal is not to teach your kids to avoid “wanting” things. We will always find things we want. Instead, we need to teach our kids what to do when they find something they want.
“Now I no longer rush to buy things I want. I take my time to figure out if I truly want it and compare it against my other goals. If I really do want it, I turn it into a goal and save my money for it. Now I can enjoy it with any regret or guilt.
Other Debt Conversation Starters
We are surrounded by teachable moments. Here are a few more suggestions:
- Ask your kids who pays for the items when you use a credit card. Make sure young kids understand that you do. Most think it’s free.
- When you pay your credit card bill, use it as another reminder that you pay for the things you buy. If you are paying interest charges, consider letting them see the bill, so they better understand the impact interest has on the cost of an item.
- During a home project, ask your kids what their dream house looks like. Let them dream big, then bring them back to reality. Share with them what was important to you when buying your home. Make sure they understand that they need to consider the features they want in their new home, but also the other things they enjoy doing, such as travel and hobbies, when buying a home to avoid overextending themeselves.
- When you find something you want, let your kids know. Then take them through your process of deciding whether it’s a want or a need. Remind them you no longer buy things just because you want it. If you want it badly enough, then you will save your money for it. Do this frequently. Most consumer debt happens because we want instant gratification. Show them repeatedly how waiting until you can buy something outright feels even better.
The Bottom Line: Talking about Debt is Good for Everyone
Again and again, I hear from so many adults that they wish their parents had talked to them about money, particularly about debt. Will doing so guarantee that your kids won’t get themselves into money trouble? Of course not. But most kids go out into the world with little understanding of debt and have no idea of the dangers of it until they are hip-deep in debt. They won’t know to avoid unnecessary debt unless we teach them. So let’s talk to them.