Every parent wants their child to have a healthy financial future.  Telling a child about the difficulties that debt will bring into their life may not make as great an impact as teaching the child through example.  At times parents can say one thing, but teach another through their own actions.

What happens when your child has a few dollars in his pocket?  Does he want to spend it right away?  Most children will go to the store looking for a new toy or book.  The child will walk up and down the aisles searching until something catches their eye. 

If the child has very little to spend, they may ask you for a “loan” with the promise of paying it back.  Parents want happy children and you may choose to extend the needed “loan” making everyone happy, for the time being.

A valuable lesson has just been taught, but is it the right one?  We may tell our children to spend their money wisely however, with our actions we have shown them that borrowing a few dollars for an impulse buy is acceptable.

Children learn by doing.  How could this situation be handled differently and become a learning experience?

Begin by teaching your children about Proverbs 22:7, in this scripture we learn how the poor man that borrows from the rich man is a slave to the rich man.  Explain to your children that until a debt is paid, a portion of their money belongs to someone else.

When a child has a few dollars they instinctively grasp the idea of spending, you must be diligent to teach them the value of saving.  A savings jar is the perfect place to start.  Talk to them about the difference between saving for something they really want and impulse buying.  Help them to understand that saving their money today will help them have more in the future.  You may ask them to put a certain percentage in the jar while allowing some of the money for their daily use.

If your child asks to borrow some money while promising to pay it back, use this as a teaching opportunity.  In most cases parents do not expect payment from their children and the debt is informally forgiven.  Children are smart and they learn this to be the case, setting up a pattern of thought and behavior.  When they become adults they will learn credit card companies are not as forgiving.

You may wish to agree to the loan, for instructional purposes.  Never loan more than your child could reasonably handle.  When you return home, sit down and discuss the loan with your child.  Set up a payment plan.  If your child has no regular income for making payments, they may need to work it off through household chores.

The intent of the lesson is to help your child understand how impulse buying and borrowing money today, can have an impact on their life in the future.  In some cases they may be continuing to pay off the loan long after that new purchase has lost its value.  The next time they ask to borrow a few dollars, a simple reminder may be all that is needed. 

Getting into debt can begin with a mindset started at a young age.  This post is the second in a series designed to discuss financial debt, the causes, and the solutions.  If you feel it would be helpful for family members or friends, feel free to share the link.  Everyone could use a little help now and then.