How to Talk to Kids About Debt

How much information do you give your kids about your finances?

Kids listen. We don’t always think they do, but they pick up on a lot. Getting out of debt has been a major conversation in our house recently, and our kids have had quite a bit to say about it. When we made the decision to get out of debt in 2012, we didn’t even think about what we should tell the kids. It quickly became obvious that the changes in our lifestyle were going to affect them, though – so we decided it was only fair to warn them what was coming.

We are trying to balance giving them enough information without worrying or overhwleming them. Our kids’ ages range from 10 to 1, so the information we give our oldest is drastically different from what we give our 4 year old. Here are a few things we have learned about talking to our kids about debt.

Kids Remember What You Say
Last month, we spent a lot of time explaining to our kids that they couldn’t include everything they saw on TV on their Christmas lists. I finally capped their lists at 5 items each – if they wanted to add something to the list, they had to take something off first. I made this “rule” in early November, and over a month later my six year-old was debating what he was going to remove from his list in order to put “Longhorn Pillow Pet” on it. This was a good reminder: even when it doesn’t seem like they’re listening, they are - and they will remember it!  (And don’t say anything you don’t want repeated…)

Kids Believe What You Say
We had a family meeting to tell the kids a little bit about our plan to get out of debt. One of the things we were preparing them for was a more “restrained” Christmas.  We told them that they would only be getting one present from Santa and one present from Mom & Dad on Christmas morning. (Their brains translated that to, “You’re only getting one gift, so you’d better make it a good one!”) I expected them to have major trouble with it, but several times they have told me, “Mommy, for the one present I’m getting from you…” as though this was the way we had always done it.

In fact, they had much less trouble with the idea than I did!  While I was shopping, I would start to think, “Oh, one more little present won’t hurt anything…” It was very difficult for me to stick with this decision and resist the temptation to spend more money than we had budgeted. Kids have a much greater capacity to adapt than we think they do. We often underestimate them, but they have an easier time with it than we do.

Kids Will Hold You Accountable
“No going out to eat.” This was Rule No. 1 that we told the kids about in our Family Meeting. They whined a little bit, but ultimately understood, and they rarely asked to go out to eat afterwards. One evening, however, several out-of-town family members decided to get together at Chili’s and we decided to meet them. As we’re leaving, my precociuos 6 year old reminded me, “I thought you wanted to get out of debt!”  Talk about a kick in the stomach! Once they understand the “rule,” they rarely understand that there can be exceptions. They may need that word explained to them. (Of course, if they see Mom and Dad breaking the rules repeatedly, they will quickly learn that it wasn’t really a rule to begin with.)

So what do your children need to hear and understand about getting out of debt?

I believe they need to understand how the debt got there in the first place, why it’s a problem, and what your plan is to fix it. Without understanding where the debt came from, they won’t know why it’s a problem. Explaining this on a kids’ level can be difficult. We have had to talk about borrowing money and why that’s not a good idea. We’ve tried to explain what interest is, but that is difficult to do with young kids, too. Here is how we finally explained it to our kids:

When you borrow money from the bank, you have to pay it back to them. When you pay it back, you also have to give them some extra money. That’s called “interest.” So it’s like borrowing $10, and having to pay back $15.

For some reason, when we explain debt to our kids, it starts to sound really dumb. They look at you with expressions that say, “Why would anyone want to do that?” And we ask ourselves the same question.

Explaining why debt is a problem is less of a challenge. “We can’t go out to eat because we have to pay our credit card bills,” will usually suffice. But we’ve also tried to explain some of the emotional and spiritual aspects of debt. We want them to understand that learning to wait for what you want, and save for it, will allow you to value your money, your time, and your possessions more. We don’t want them to take for granted the things that they have. According to James A. Roberts in Shiny Objects: Why We Spend Money We Don’t Have in Search of Happiness We Can’t Buy, “When we use credit cards, we make quicker purchasing decisions, are more likely to buy, and are willing to pay more.” I want my children to make less emotional decisions and understand what it means to work hard and save hard, and truly enjoy the things that they buy with their hard-earned money.

Finally, kids need to understand that you have a plan. This is the part that will keep them from worrying. As I said before, kids have an amazing ability to adapt to change. When we laid out for them the things that we are changing in order to get out of debt, our kids immediately got on board. Without a plan, however, kids will remain unsettled, worried about the future and how things will turn out. (Even with a plan, there will be some of those doubts to contend with. We were recently given a gift card to a restaurant and took the kids out to eat. On the way out of the restaurant, my son asked, “Does that mean we added money to our debt?” He was so worried we had to stop right there and explain.)

Experiencing the consequences of our actions are never fun. But it is my hope that we can use this time in our family’s life not only to learn from our own mistakes, but also to teach our kids how to avoid those mistakes. Talking to them about our debt is a first step.

What information do you give your kids about your finances? How much is “too much” information?

3 thoughts on “How to Talk to Kids About Debt”

  1. Lindsay, thank you for the story and I look forward to reading more from you. That must be a tremendous relief that the kids are onboard your debt free journey!

  2. It does sound silly when you have to explain borrowing money. Thinking about explaining debt is probably a great way to rein in that urge to spend, too. Lindsay, sounds like ya’ll are doing a great job teaching the kids. My parents carried a debt that they just couldn’t beat all through my childhood and their early talks with me have made all the difference in my views of personal finance.

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