How To Teach A 7 Year Old To Get Into Debt
So you've probably got a few things on your list of things to teach your kids this week. How to kick a footy, how to bake a cake, how to tie their shoelaces? Possibly. How to become lifetime slaves to consumer credit? Doubtful. But you might be teaching them that without even realising it.
Several months ago I saw firsthand how powerful the influence of financial teaching in the home can be. I was visiting at a friend's house and our children were playing together. My friend explained that his son had really wanted a particular toy and so he had given him his whole month's pocket money in advance so he could get it right away.
Every family needs to make their own decisions about pocket money, chores and how kids get money etc. That's not what this post is about. I just thought - as an external observer - that it was a missed opportunity to teach their son to save up for something. But it was just a few weeks' pocket money in advance and so I didn't think any more of it.
Several weeks later I was back at my friend's house and he happily told me how good his kids had been with cleaning up and doing chores. It sounded great, but what he said next really surprised me.
The kids had really, really wanted another toy - a different one to last time. This toy cost more than 3 months' worth of pocket money. So the parents gave them the money to get the toy and the kids wouldn't be getting any pocket money until the end of January - about 3 months away. In addition to their regular chores they had to do additional jobs around the house to pay off the debt.
Parenting is a challenging and subjective role, even at the best of times. So I'm not throwing stones at my friends and their decisions. I know they are great, loving parents. But this scenario is worth looking at to see what it is really teaching children in regards to money.
Lesson 1 - Buy Now and Pay Later
Sometimes when it comes to purchasing, the desire for it to be NOW overshadows the real value and worth of the object. If we want to be more financially wise, adults and children alike need to learn to surpress the feeling of "I need to get it now". If you buy now and pay later, there is always an additional cost - sometimes a crippling cost.
My friend's kids were learning that lesson in having to do extra chores plus forego 3 months of income. The extra chores were going well for the first week, as the excitement of the new toy was still fresh. But after several months the positive feelings towards the extra chores are unlikely to be so strong. After the kids start to complain about doing so many chores, the parents may be tempted to let them off.
The difficulty for parents in this situation is that they have taught their kids that in life you can buy now and pay later. But they also need to teach the lesson that credit is expensive and at times painful. Banks are not forgiving with repayments and interest charges. So if a parent becomes lax on the interest charges (i.e no pocket money plus additional chores) then the child learns that they can buy now and not really pay later. Try telling that to a bank.
Lesson 2 - Getting Things Now Is Important
When we buy now and pay later it says "GETTING is important". Most happy people know that accumulating stuff doesn't really make you happy. And even if it does for a little while it soon wears off. So it's an expensive habit to keeping getting things just to make you happy or satisfied.
It also says "THINGS are important". We all need the necesseties of life, but most things are just not critical to happiness. Studies show that buying experiences tends to pay much better dividends in the long term than buying things. The earlier parents and children learn this, the more likely money will be invested in experiences that matter.
The buy now and pay later mindset is capped off with the attitude that "NOW is important". In most cases now simply isn't important, especially if it's a shiny, new toy that will be forgotten within a week or soon replaced by a better model. That might be the latest Skylanders figurine if you're 7 or maybe the latest iPad if you're 27.
Lesson 3 - Money Can Come From Somewhere Else
Reinforced in this experience is that there is an external source of money for almost any occassion. Naturally parents buy many things for their children. But when it's coupled with a "get it now" attitude and "I'll pay it off later" it's sowing the seeds of trouble.
Rather than teach work and enterprise to earn extra money, the lesson is that someone else provides the money.
Consumer debt for adults fills exactly the same need that a 7 year old has when he wants that toy now. Credit cards and personal loans pay for something that really isn't affordable and for many people a lifetime of servitude to debt ensues. Someone else provides the money - and it always comes at a price.
Lesson 4 - Saving Isn't Important
I wish my friend had taken the opportunity to teach his children about the value of saving. But instead those lessons have gone untaught. The lesson that has been taught is that saving isn't important.
Several years ago my son, who was 4 years old at the time, wanted a scooter. He'd recently received a new bike so we let him know that he could save up for it using his pocket money. We looked at how long it would take him to save that much money and he decided he wanted it sooner. So he started washing cars and doing extra jobs for grandparents to earn more money.
Within a couple of months he'd saved the money and learnt important lessons about work and enterprise along the way. Saving IS important and it's what we do in our family.
Many adults have never been taught the lessons of financial literacy from their own parents. And schools sure don't teach them. But unless there is a break in the chain and parents make a concerted effort to teach sound financial principles to their children - and live these same principles - we're perpetuating financial ignorance and servitude to debt.
Teaching your 7 year old how to get into credit card debt is not something we ever set out to do - but inadvertently many of us are doing it without realising.
If you would like to know more about when to pay pocket money, and how to pay it, read our 'Pocket Money For Kids' guide here.