4 Ways to Train Your Children to be Debt Free
Editor's note: This article originally appeared in the August 2012 edition of the River Reader's Journey. Used with permission.
In Proverbs 22:7, God warns us of the dangers of debt: “Just as the rich rule the poor, so the borrower is servant to the lender” (NLT). In 2008, many Christian families realized too late the truth in those words. With the recent economic crisis, our country saw the tragic effects of mounting debt as families lost homes and jobs. For many Americans, this was a call for drastic change, and families began to pare back spending and look for ways to reduce their debt. But are we teaching our youth to do the same? When we drop our teenagers off at college, are they prepared to handle the onslaught of credit card offers they'll receive?
By training delayed gratification, talking openly about the family budget and providing opportunities for children to practice money-management skills, we encourage them to understand the value of a dollar. Similarly, by allowing children to learn from their mistakes, parents can help youth stand strong against the rising surge of materialism and its often devastating consequences.
Train delayed gratification early and consistently
“The plans of the diligent lead to profit as surely as haste leads to poverty” (Proverbs 21:5 NIV).
In our instant-messaging, sensory-saturating culture where everything is but a click of the mouse away, teaching our children to wait can be difficult. But encouraging them to consider long-term consequences and goals helps prevent impulse shopping and costly decisions that could land them into debt.
According to Anthony Brown, Certified Financial Planner and Advisor with Montgomery’s Ronald Blue and Co, many families have more debt than assets. “Most people today define financial success as being able to have whatever they want when they want it,” he said. “But is that the true measure of financial success? I believe the biblical view of financial success is that of a mature financial steward. Financial maturity comes about over time as we learn the basic principle of delayed gratification, primarily giving up today’s desires for future benefits.”
For Mr. Brown, this training begins when the children are young and involves all areas of their children’s lives. “My wife and I homeschool our three youngest children. They each have certain school related assignments that must be completed prior to play outside. In addition, each [child] is responsible for household chores that are to be done before moving on to other activities.”
Openly discuss the family budget
Training delayed gratification is a great start, but it is not enough. Children need to understand why patience and perseverance is important. They need to learn to view things from a long-term perspective. At age eighteen, a job paying $10 an hour may seem like a lot of money. Once our youth see the cost of maintaining a home and raising a family, however, this view is likely to change.
Michael Harris, founder and President of Montgomery’s Harris Family Capital Management, believes family financial discussions are an important aspect of promoting value-based and purpose driven financial planning. “I encourage my clients to begin having values conversations with their children as soon as they show some understanding of the four basic components of financial management: earn, spend, save, give,” Mr. Harris said.
More than that, involving your children in your budgeting discussions allows them to see financial principles lived out. “The goal should be to provide the example then create an environment where children can apply what they learn,” said Mr. Brown. “We provide a good opportunity for long-term success when we model financial stewardship. Communicate the basics. Children should have an age-appropriate understanding of cash flow coming in and out. Consider including your children in discussions about how much the family gives charitably, how much is paid in taxes, debt repayment, basic living expenses, and saving for the future.”
Provide money-handling opportunities
Parents’ verbal instructions will be enhanced when they provide their children with age-appropriate opportunities to handle finances while they are in the home. Allowances often enable children to practice the financial skills—like money management and investing—they’ll need to survive in our tough economic times.
At twelve, a child may be able to handle all of their entertainment funds. By fourteen, their financial responsibilities might include managing clothing needs, haircuts, and school supplies. By eighteen, perhaps they can begin to handle some aspect of the family budget like grocery needs or the family entertainment fund.
When Prattville parent, Amy Alexander’s children were young, she encouraged them to save for large purchases. When they grew older and found employment, she and her husband allowed them to spend and save their earnings as they chose. “But we gave them less money, so they had to spend wisely or run out,” Amy said. “So far, they have each chosen wisely, and the boys’ high school earnings took them well into college.”
Allow children to make financial mistakes
As our children age, the stakes rise. It's much easier for a fourteen-year-old who's blown their allowance to go without new clothes than it is for a forty-seven-year-old who's buried himself in debt to deal with foreclosure.
“The key to providing teenagers with an accurate view of money is to give them the actual experience over time of living on a limited amount,” said Mr. Brown. “When an eight-year-old blows his allowance on something frivolous, he should then be allowed to experience the consequence. Each dollar can only be spent once, and any money consumed today is gone forever.”
Loaning money to our children without consequences can be detrimental, training instant gratification, impulse shopping, and poor money handling. However, if handled correctly, Mr. Brown believes parental loans can provide an invaluable lesson on debt.
“As the child experiences the impact of interest, the challenge of having to make payments, and possibly even having a favorite item “repossessed,” valuable life-long lessons are learned,” Brown said. “Many of us would agree that the greatest lessons learned in life are sometimes learned during periods of struggle. Look for opportunities for your children to learn things the hard way while still under your guidance and protection. There is always a danger in completely insulating a child from the consequences of their bad decisions.”
“A prudent person foresees danger and takes precautions. The simpleton goes blindly on and suffers the consequences” (Proverbs 27:12 NLT).
Throughout its pages, the Bible reminds us of the value of wisdom followed by careful planning. God further instructs us to train our children with patience, forethought, and diligence. Financial difficulties, economic downturns, and unexpected expenses are bound to come. Children who have practiced delayed gratification, have learned the cost of maintaining a household, who have been given the opportunity to practice money-management skills, and who have been allowed to learn from their mistakes will be less likely to fall into debt.
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