Should You Charge Your Children Interest?
We’ve all heard it.
“Mom, can I borrow five bucks?”
And we all know that “borrow” means “have” because most children won’t remember tomorrow that they borrowed anything at all from you today.
But what if we did things differently?
Do you think it’s right to charge your child interest when they borrow money from you? Do you ever force them to pay it back?
I wanted to talk with you guys about this today, and see what you thought. At what point, as parents do we step in and teach our child what “borrow” really means? ‘Cause I’m very sure that if we let them grow up, and get out of the house before they learn it, that we’ve failed in an important area.
My daughter’s still young, very young, she’s not yet two. But these types of thoughts are going around in my head, and I want to lay down some plans for how I want to teach her as she grows.
I know that I never had to pay my parents back for anything when I grew up. They never charged me interest on anything I borrowed, or even said anything to me at all if I didn’t pay it back. In fact, we never really talked much about credit, loans, or debt, ever.
So I wanted to turn this topic over to some of the more experienced parents among us.
How do you teach your child about borrowing money? About interest rates? About what a loan really means?
Or, if you’re a future parent, or the parent of a young child (like me), how do you plan to teach your kids about borrowing money?
Is it as simple as “Borrow money? Don’t do it!” or do you have a more complex outlook?
I did a bit of surfing around the internet, to see what kinds of ideas were out there, and I thought there were a few good ones worth sharing:
The Family Education site made a good point about saying no to your child when they ask for a loan:
You can say no and refuse to help. Maybe you’re saying no because you don’t want your child to have the money. Or, maybe you just can’t afford to help.
Either way, it’s an important lesson for your child to learn that, as the Rolling Stones have said, “You can’t always get what you want.”
Hmm, sometimes not getting what you want immediately is a valuable lesson in itself! I definitely know that is something that I want to teach my daughter. In a world where instant credit is so common, I think it’s very worthwhile to emphasize saving instead of borrowing.
An article that I found on Financial Web about kids and credit was actually pretty scary:
Do you know whom the credit card companies really want to reach? Are you aware of whom they really desire to bring into their fold? Well, if you read the title of this article, you already know. It’s your kids, starting with your 12-year-old and up through your college student and young adult. But why would credit card companies want to reach kids when they could focus exclusively on wage-earning adults?
It’s actually quite simple. The credit card professionals know that children are vulnerable, that they’re usually short on cash, and that they’re fairly easy to snare into the minimum-payment lifestyle. Young people are outstanding targets for credit card companies because kids, accustomed to seeing their parents pay with plastic money, have been conditioned to believe that credit debt is simply a natural part of life. These companies also target college attendees because the students are assumed to be relatively safe risks; this is because the companies anticipate that the parents will step in and pay the balances off if the kids can’t do it.
I don’t really know if I believe the credit card companies are “out to get” our children. However, I certainly think they are not averse to taking advantage of the lack of education about credit cards and interest. Both from adults and children.
So far, my basic plan for my daughter looks something like this:
- Teach her to save first – I’m really only open to lending her money if it’s a necessity. And since I will take care of her necessities anyway, there should be no real reason to lend her money.
- If I do choose to lend her money, I will charge her interest – The longer she takes to pay me back, the more interest will be applied. I mean, that’s the way the world works, and I would rather her know that before she leaves my house.
- When she wants to something, I am going to help her work out a simple budget and savings chart – I want her to figure out how long it will take her to something, and decide whether or not it is worth it based off of her time investment.
- I plan to her this super cool piggy bank! – It has four chambers, spend, save, invest, charity. I would like to drive those points home as early as possible.
So, how about you? Do you think charging your child interest on a loan is the right thing to do? Please leave me a comment and let me know what you think!
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