Desperate to help your children understand how money works?  Here’s an awesome, safe way to teach your kids about money, debt, credit cards and responsibility.

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Why I Put My Daughter Into Debt

I know, ouch, right?  Yes, I did put my daughter into debt and I would do it again.

 

Here’s the deal

My husband and I are actively working super hard to get out of debt.  Dave Ramsey, Financial Peace University and the whole bit (want to learn more?  Check out this post I did awhile back).  So our kids are pretty into the whole “being debt free” thing.

Though I’m pretty sure that growing up in this environment will keep them from ever going into debt, I want to be really, really sure that they never head down that road.  But what’s the thing that really teaches us life lessons?  Usually personal experience.  Real life is the surest teacher.

So I set out to give my daughter real-life experience while she is young so that it doesn’t set her, or my other children, back big time in the future.  Here’s what we did.

Giving Kids Real-life debt experience…safely.

My daughter really wanted to go to a certain summer day camp.  It was pretty pricey, but really my husband and I thought it was worthwhile for her to go, so we decided to send her.  Only we didn’t tell her that.

We decided that we could use it as an awesome learning tool.  First we explained that the camp cost $225 for the week.  Then we told her that for us that is a lot of money (which is true!).  Then we explained that if she wanted to go, she would have to pay for it herself.

At that point she was going, “How am I supposed to earn money?  I don’t have a job!”  And honestly at 10 (almost 11) years old, she won’t be getting a job super soon, so she was right.  But I explained that we were willing to hire her to do the household laundry (wash, dry, fold, put-away) in exchange for $20 per week.  Do the work, get paid.  Don’t do the work, no money.

Sounded straight forward enough to her until she figured out that the camp was only a couple weeks away and it would take her over 2 months to earn enough to pay for it.  I told her it wasn’t a big deal, she could just pay for it after she earned the money.  She quickly agreed.

1st Lesson Learned

Then came the real-life debt experience.  I explained that I would be giving her a monthly bill (minimum $40 payment) which she would have to pay.  Also, after the camp was over, whatever balance remained would be subject to a monthly interest rate of 2.5% (based on an annual rate of 29.99%).

This opened some long discussions on interest and how it worked etc.  It was fantastic to see her brain working and trying to figure out how come we were getting extra money just because she didn’t pay us right away!  She didn’t think the whole interest thing was fair.  First win!

2nd Lesson Learned

The second win happened unintentionally.  While out of state, we stayed in a hotel and my daughter accidentally left her purse behind.  All the money she had to her name was in that purse; gift money, earned laundry money, even some money she had earned doing extra work for her grandparents.  Though she eventually got the purse back, it took over 6 weeks, so she was penniless for quite awhile.

During that time one of her monthly payments came due.  And she had fallen off the work wagon.  She had lost her ambition to do laundry and it piled up big time.  I reminded her gently once a day, but she didn’t do anything.  And she really didn’t care.  Enter “mean mom.”

I explained gently that I would be adding a late fee if she failed to make the minimum monthly payment that month.  Yep, mean.  I know it was a bummer that she had lost her purse and didn’t have money and it was also a bummer that she kind of forgot all about laundry but…hello reality.  Just like when the car breaks down and we have to fix it and we don’t have any money…again, hello reality.

So when the first of the money came around I added a $35 late fee to her bill.  $35?!  Yep, just keeping it real.  She was pretty upset.  Including the dramatic “I’m never going to be able to pay this off!”

This opened up another reality door.  We got to talk a long time about credit cards and how they work.  How you get late fees even if you just forget to pay.  How they don’t care if you lost your purse or anything else.  How they make massive amounts of money on fees.  I’m pretty sure she thinks it’s all insane now.  Who would ever want a credit card?

And I can’t tell you how happy that makes me.

This whole experiment has even started conversations about how to pay for college without taking out loans.  She is absolutely determined not to owe money.  Wahoo!

This experiment is not quite done yet, but she’s already learned so much.  She still has a few more “payments” to make and I plan to update this post with the final results…

And before you freak out on me, let me state the obvious.  She doesn’t really “owe” us the money.  We would have sent her to camp either way.  And honestly, the laundry was a chore she helps with anyway, so she isn’t really working for us, but until she’s a little older she won’t realize that.  For now, the important thing is she is developing a realistic understanding of how money works and it’s an invaluable lesson.

I know this may hit some people wrong, but think of it this way, how different would your life be if someone had explained how money works to you when you were only 10?  Where would you be?  What dreams do you have that won’t come true because of finances?

If we can show our kids with love and care what real life can be like (while they are still in the safety of our homes), maybe we can better prepare them to handle life circumstances and give them the ability to make better decisions on their own.

We have other experiments in the works…and I’m super excited to see what kind of positive fruit it can yield in my kids lives.

How have you taught your kids to handle money?  Any tips you’d like to share?  Please comment below!

 

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