How do we make sure our children don't get into debt?

debt-freeoneday · 26 June 2013 at 9:00PM

As a parent who is currently in debt, I've been wondering about how I can make sure my beautiful little girl knows the value of money when growing up so that she doesn't make the same mistakes that I have done in the past.

My wonderful parents have never been in debt but growing up, we didn't have much money. That could be why I was frivolous with spending money once I went out to work! (Same for the hubby).

With peer pressure from others who do have money and the latest gadgets to go with it, how is one to educate our children to make the right decisions about money throughout their lives?

We have a small savings account for our daughter that we pay into monthly but the majority of our money goes into bills and a debt management plan. This pot of money, I'm hoping will grow once our DMP is paid off and hopefully help to fund her further education or deposit for a house.

At the same time, I do not want our daughter to grow up thinking that money is simply handed over to her on a plate (if we ever build up such an amount).

Just a thought that's been niggling at me and wondered what others are doing out there to embed the right thinking and practices around money and their children?

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Bobarella · 26 June 2013 at 9:26PM

Hi Debtfreeoneday

Its a very interesting point you pose. I have a 4 year old, and I have already begun trying to help him understand that things cost money. We involve him with the shopping, show him our change, our wallets, purses, and explain why Mummy and Daddy go to work.
We dont spoil him. He helped to write his xmas list at xmas, and we gave him some of the items on it. But compared to some of his friends, he got very little. However, we are both much more into experiences as a family than things, so we hope to pass that on to him.
I'd much rather pay for him to have swimming lessons etc than buy him expensive shoes that he will only grow out of in a short while.

Regarding savings for the future. We set up a basic savings account when he was born and pay in any xmas and birthday cheques sent by family. I am sure at some point soon he wont want to put all his birthday/xmas money away, so I am glad to have made a start early.

You sound like you have all the best intentions for yours, and I think thats half the battle.

Bob

Skinnylatte · 27 June 2013 at 6:39AM

What an excellent question, I've been wondering the same, as I'm hardly a good example. Mine are teenagers so maybe the damage is done?

unimaginative_user_name · 27 June 2013 at 6:54AM

I volunteer once a week in a local infant school and am struck by the number of able children who struggle with the concept of giving change from £5. It turns out that many of them never experience shopping with cash and only see credits cards being used or their parents do so much shopping online that they never really witness people paying for anything. From an early age it is good for children to have a little money to play with and make decisions about. For example if they are going out for the day give them a couple of pounds they can either spend or save rather than buying them something.

I have just started paying my teenager pocket money (not loads) by standing order so that she learns to budget and make decisions regarding her own finances. Her biggest expense is toiletries and make up. I have made it clear to her that I will pay for basic essentials like toothpaste, deodorant and basic shampoo but that doesn't mean the £15 a pot stuff from Lush! If she wants that she has to pay for it herself! She will then have to choose between that and the mascara she gets through at an incredible rate. She doesn't like it but I feel she needs to learn not to rely on the bank of mum and dad over the little things so that when she's older she takes responsibility over her own money issues.

FBaby · 27 June 2013 at 8:31AM

This is something I really have at heart. I only had minor issues with debts in my early 20s which was quickly resolved and have since been very careful with money, but my children's dad had serious debts problems for all his life (one of the main reason for our separation) and I really don't want them to fall into the same trap.

My approach to it is to include talks about money in our normal every day discussions appropriate for their age. My parents never talked to me about money. It's not that it was taboo, just that they didn't think it was anything children should be involved in. There is no doubt that it is complete ignorance of how finances worked that got me in trouble to start with. It was a quick learning curve!

Bringing money into discussion has been very natural. For exemple, I will be writing a cheque to pay for the home insurance, they would ask me what I'm doing, instead of replying 'oh nothing, mummy is just paying a bill', I would explain why we have insurance, and the concept of it, that you pay every month a small amount so that if something happens, we get money back for what we've lost. Same with when I take money out of the machine, I explained that it only gives me money if I have some on my account. My kids understood the concept of credit when they were only 5 or 6. They are now 10 and 13 and only last week we discussed what was a deposit for a house was, and when the Cyprus bank story came out, my 10 year old ask me to explain how you could lose money you put into the bank.

Mt 13yo has a bank account and bank card she use to pay anything. Thankfully, it won't allow her to spend what isn't on her account, but the embarassment of saying her card was denied has been enough to make sure she checked how much she has. They get pocket money, and they have to manage that.

aliasojo · 27 June 2013 at 8:42AM

Having been raised by parents who kept ALL their business private from their children (including things like which political party they voted for), I vowed I would be more open with mine.

My middle lad was always aware we had money issues and when he was an adult I used to talk to him like almost like a peer. I realise this wouldn't have been everyone's way but it worked for us.

He's 24 now, is reasonably flush and has bought his first 3 bedroom house overlooking the sea after putting down a large deposit. He says himself the reason he got on so well is because he saw what we went through with our money problems and he never wanted to experience that stress for himself. He has credit cards but they are cleared off every month and he has savings built up as a safety net.

He reckons he might not have been so careful if he hadn't seen first hand the upset money worries can have.

My daughter is younger and isn't party to as much info but she too is aware money is tight and we have debts to pay. She is following in her brother's footsteps and is already vowing not to have debt.

I know a lot of families prefer shielding their kids from the harsher realities of life but being more open has worked for us and has given the kids more determination to not 'stuff up'.

I should add this approach depends on the kid themselves, some kids are terrible worriers and I wouldn't advise sharing info with a kid who couldn't deal with it pragmatically.

quantic · 27 June 2013 at 11:28AM

I think its tricky...

I like to think I've got a pretty good understanding of finance for my age bracket - which I imagine came from my dad who runs a successful business.

On the flip side, my sister had the same parents, is older and she could not be anymore financially illiterate if she tried.

neverdespairgirl · 27 June 2013 at 12:13PM

My parents always explained things such as mortgages, insurance and so forth to us - when we were clearing my parents' house out before Christmas, as they sold to downsize, I came across an essay I wrote when I was 8, for school, on the topic of "What I would do with £ 1 million". I had written, with rather bad spelling, "Pay the morrrgig on our house. The bank gives you money and you buy a house and you give it back to them every month with extra to say thank you".

I, similarly, explain such things to my son. He has a fixed amount to spend on pocket money, so he understands choosing between sweets / magazines / saving up for something bigger.

RainManSam · 27 June 2013 at 1:03PM

I'm 33 and never been in debt bar a credit card I had with a £50 limit when I was 19. I think I used it once and didn't like the feeling of owning the bank £10 or whatever it was. I cancelled.

I hope I'll teach my kids that you aren't defined by what you have but by who you are. I hope they'll understand that a very very large majority of people who buy the latest useless gadgets are doing so on debt. It is not really theirs. It belongs to the bank. You're paying rent until you either pay it off, or the bank takes it back. It's really just how it is.

My parents never had any debt apart from the mortgage my dad cleared when he was in his late 40s. We never lived above our means and both my parents retired on their 55th birthdays. This is with doing normal jobs. Mom being a teacher and dad being an airplane mechanic. Today they live wonderful lives I'm also aiming to live like in my 50s one day. They have no stress, no debts and no money issues. Compared to their friends, neighbours and peers that'll die on the job and with nothing that's really theirs to their names (it all belong to the banks), they have it pretty good.

My fianc! took years to understand this concept. Years of gently explaining, prodding and setting goals together, she's now finally debt free and anti debt. We now have enough savings to put down a 60% deposit on our dream property and when we do so, we're both going to take 2nd jobs for a year with the aim of reducing our mortgage debt by 80%. By the time I'm 37 I'll be mortgage free.

Beating the old man by 10 years. He'll be very proud

neverdespairgirl · 27 June 2013 at 1:13PM

Debt can be useful, RainManSam, it can be an investment. I've had two types of debt in my life - student debt (which was an investment in my education) and mortgage (for our home). They aren't as pointless as debt-for-stuff is.

debt-freeoneday · 27 June 2013 at 2:06PM

Thanks to all of you for your really helpful replies. I will be adopting some of the approaches that many of you have suggested - it seems that by starting early and including our children in conversations / tasks to do with money, this can help to give them an early understanding of what money is used for and the consequences of spending money on various things.

At the moment my little girl, who is nearly 3 years old, has a bit of an obsession about lollipops! I don't let her have them that often, but when I do, I give her the money in change, she then chooses the lollipop at the shop and pays the person on the till. I've been trying to explain that all the items in the shop cost mummy money and we have to pay for things. It's a start!

How do we make sure our children don't get into debt?

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