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How to Talk to Kids About Money, Debt and College Loans

Starting money lessons early can give your kids a solid foundation to make better financial decisions on their own.

By  Evan Mayhew

Key Takeaways

Kids can learn valuable money lessons from real-life examples, including budgeting for their wants and needs or insight into your own financial journey.

Giving kids the opportunity to take on and pay off simple debts can help them understand what it feels like to earn and owe money.

Student loans may be a child’s first experience with major debt, so it’s important to have early discussions about college costs and payment options.

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 younger kids about money, loans and college debt may reduce their adult children’s money-related anxiety—and help set them up for financial success in the future.

63% of adults say money is a significant source of stress.*

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

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 budgeting, college planning and debt, will be ongoing.

And teaching by example is one of the powerful ways kids learn money lessons. 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

You can start by sharing 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.

Describe 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 credit cards at the 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 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 and have them practice saving and spending choices.

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 ask them to pay for the game with their own money. The problem is, your children don’t have enough money saved—so you give them a loan.

One of the best ways to teach kids about money is 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 out the 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.

You could also consider having your kids start a lemonade stand or host a bake sale, or if they’re old enough, earn money by babysitting or doing yardwork for neighbors. They could also sell toys, books or clothes individually or at a family yard sale and put that money toward the loan balance.

Stick to Your Terms

This is the most important teachable moment of all—showing your kids what it takes to pay off debt and what it feels like to owe money. If you erase the debt when things get tough, they won’t learn one of the most important money 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, Budgeting and Debt

It’s one thing to talk about money now, but it can be harder to teach kids about future debt. But here’s why tackling the topic of money 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.

Start College Debt Discussions Early

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 might 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.

Break down college education costs. You can introduce the concepts of tuition and room and board—and how colleges and universities come with varying price tags. Costs can depend on whether the college is public or private, in-state or out-of-state, and prestigious or less well-known.

How Much Could College Cost?

Use our calculator to estimate expenses and how costs can rise over time.
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Explain how student loans can affect post-grad choices. Paying off college debt might limit financial choices after graduation—they might have to delay buying a house or starting a family depending on their debt situation. Using your own life as an example, show them how reducing student debt could make life a whole lot smoother.

Look into payment options other than student loans. Scholarships, grants and financial aid can offset the overall costs of higher education and help them avoid college debt.

Start saving as early as possible. You may already have a dedicated college investment account, such as a 529 education savings plan. Teach them about the importance of starting early to maximize potential growth through compound interest.

The Importance of Money Lessons for Kids

Teaching kids about debt and money can help to create healthier spending habits. It will empower them to make better financial decisions and give them a better chance to build a stable financial future on their own.

Evan Mayhew
Evan Mayhew

Vice President

National Accounts

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Stress in America 2023, American Psychological Association, November 2023.

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The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.