How to Talk to Your Kids About Money and Debt

Most parents just don't talk about money with family, including their kids. It’s no surprise. Many people are uncomfortable talking about it. But parents who take an active role in teaching their kids about money and debt may reduce their adult children’s money-related anxiety.

Money is a major stressor in people’s lives, according to an annual, nationwide survey by the American Psychological Association. If you don’t want to pass on potential money stresses—like debt—to your children, the best thing you can do is introduce them to core financial topics early on.

That means teaching kids about money and debt—the good, the bad and the ugly.

Here are some constructive ways to broach the subjects of money and debt as a family.

How to Talk About Money as a Family

Teaching kids about money won’t be a one-time conversation. Understand that talking about money with family, including debt and budgeting, will be ongoing.

And teaching by example is one of the powerful ways kids learn. From giving them an allowance to helping them understand the finances around attending college, there are plenty of opportunities to discuss money as a family.

Talk to Your Kids About Your Own Debt

Share your own debt journey with your kids. Whether you've had student loans, credit card debt, automobile loans or a mortgage, your experience can highlight the real consequences of living with debt.

Talk about how you’re paying back debt. Include any lending mistakes you made and what you gave up to lower your debt or become debt-free. As they begin to understand debt, let kids also get involved with daily purchases. Ask your kids to handle cash or the credit card at the store at checkout. Build on these teaching moments as they get older.

Explain the math of debt. When your children are old enough to understand some basic math, talk about debt in depth as a family, including interest rates, monthly payments and terms. If you refinance a loan at a lower interest rate, describe that process and how much it cut your monthly payment. When it comes to kids and money, breaking it all down can even be a good math lesson for middle schoolers.

Download a visual aid. As a family activity, mark off every time you repay a certain amount of money. Show your kids every time you pay off a chunk. This will teach them how long it takes to pay off debt and how good it feels to reach your goal.

Show your kids how to budget. Allow your kids to watch you budget and see real-life examples of separating wants from needs. You can even help them create their own budget at a young age by letting them practice saving and spending with lunch money.

Take time to celebrate. Show your kids that rewarding yourself appropriately for small victories can be a motivating force for future wins. For example, when you pay off a debt or when the balance dips below a certain threshold, you could go on a family camping trip or grab dinner at a favorite restaurant.

Teach Your Kids How to Pay Off Debt

Imagine this: One day, your children ask you to buy them a new video game. Instead of shelling out $60 and calling it a gift, you decide to have them pay for the game with their own money. The problem is, your children don’t have enough money saved up to afford it.

So, you give them a loan. One of the best ways to teach kids about money is… well, to give them some debt. This will allow them to navigate the ins and outs of credit in a safe, supervised fashion as a family.

When you give your children money in the form of a loan, write it out in plain terms. Decide how they can pay it back and how much interest you’ll charge. They could give up their weekly allowance or do extra chores around the house, for example. Remember, even young kids can load a dishwasher, fold laundry or vacuum the floors.

You could also consider having your kids start a lemonade stand or host a bake sale. They could sell any toys, books and clothes they don’t use to raise money for the purchase. If you want to have a yard sale as a family, you could allow your kids to sell their own things and put that money toward the loan balance.

If they’re old enough, it may be time for your kids to earn money after school, whether it be babysitting or yardwork for the neighbors. Making money is a simple way for kids to quickly learn more about finances.

But when it comes to kids and debt, your children may get tired of owing you money and beg you to wipe out the remaining balance.

This is the most important teachable moment of all—showing them what it takes to pay off debt and what it feels like to owe money. If you erase the debt just when things start to get tough, they won’t learn one of the most important lessons: Paying off debt is hard, and you should not take it on unless you’re prepared to pay it off.

Talk About Future Expenses and Budgeting

It’s one thing to talk about money as a family now, but it can be harder to teach kids about future debt. But here’s why tackling the topic of money as a family today will matter far beyond their childhood:

While it’s easy to lend your children $50 so they can buy a toy or game, it’s much harder to front them the money for a car. Even if your children are years away from needing a vehicle, use this time to help them start saving for it. Show them how to deposit birthday money, holiday checks and summer job income into a savings account designated for big purchases.

You can also talk about college costs, especially if your kids will have to pay part or all of their expenses. If you can show them how it feels to owe money, they’ll be more inclined to minimize student loans. They’ll also have incentive to apply for scholarships, choose a more affordable school or work a part-time job.

Student loans can affect post-grad choices. Using your own life as an example, show them how reducing student debt could make life a whole lot smoother.

Talking about debt and money today as a family can help to create more healthy spending habits—and give your children a better chance to build a stable financial future.