Money and minis: How to ensure your kids never have debt

We’ve all dealt with debt — good and bad — but with early and easy interventions, kids can get good with money before it’s make-or-break.

Right now, Americans are over $1 trillion in debt, according to a recent Federal Reserve survey. There are many reasons for this, including high inflation, high gas and grocery prices, and even stagnant wages, but many of us simply struggle with good money management. We have all dealt with debt, but your kids can skip the struggle if you start teaching them how to handle money early and stick to a budget. 

The most important lesson you can give your kids is the importance of not only earning but managing money and that it should be a tool to help them reach their goals and live a nice life, not a source of debt and stress. The earlier you start teaching your kids about money, the better — and you have the tools right at home. Here are a few tips on how to help your kids get good with money and stay out of debt as adults.

Sit down and create a budget

Most financial struggles are due to not operating with a budget. You have to know what is coming in, what is going out, and why. When you end up with more month than money, it’s usually because you don’t know where your money is going. A budget helps with this. 

A budget also helps with planning ahead and saving money. Sit down with your kids early and explain the household budget so they understand necessities versus indulgences and how to allot for each. The earlier you introduce them to budgeting, the better. It’s easy for kids to think money just exists, or that “money grows on trees” because everything is bought for them. Show them what a budget is and how you use it.

Use an allowance as a teaching tool 

It’s an age-old technique, but giving your kids an allowance is an excellent way to start teaching them about money — but don’t just give it to them; allow them to earn it. Tie the allowance to chores around the house or grades in school so they understand that they have to work for money and learn the habit early on. Work together and create a budget based on the allowance that they earn, and when they want to buy something small, make them use their allowance to pay for it. Trust — they will get interested and responsible with money real quick when they are spending their own money. 

It’s important for your child to see you save

I cannot stress this enough. Knowing the importance of saving money and being prepared for expenses and the unexpected is crucial to good money management and avoiding debt. 

Your kids should see you saving money. Take them to the bank with you when you conduct transactions and even open up a savings account for them. Long before I was a financial expert, I was a kid with a passport savings account, and all of my Christmas money went into that account, so I can attest to its effectiveness. When the bank statement comes in the mail, go over it with them and explain what it means. 

Gift or birthday money is not ‘free’ money

In the beginning, make sure your kids save any money they receive as gifts. With small kids, there probably won’t be any savings goals early on, so it can be easy to just spend the money away. When I was a kid, I loved Hubba Bubba bubble gum — I mean really loved it and would buy five or six packs at a time, which was unnecessary and a waste of money (not to mention way too much sugar). Chances are, given the chance, you did the same as a child.

So, with young kids, when those monetary birthday, Christmas, and middle school graduation gifts come in, take those funds directly to the bank and show your kids the lesson of saving as the balance grows. 

Debit/credit card usage

It’s easy for a kid to think, “Just swipe!” when it comes to spending because that is how we adults pay for most things now. Explain to them that a debit card is linked to your bank account and that money is deducted from your account as soon as you swipe your debit card. Discuss credit cards and explain that a line of credit is money the issuer is allowing you to use and that it has to be paid back — with interest.

Once they get a bit older — say 14 or 15 — open a checking account and give them the accompanying debit card. This will give them real-life experience purchasing items with a debit card, and when the bank statement comes in the mail, they will see that the money was deducted. Also, get your child used to online banking so they can see how they spend their money in real time. 

I always recommend parents also put their kids on their credit cards as authorized users. It helps build their credit early and gives them experience with credit card usage. The last thing you want is for your kid’s first experience with a credit card to be in college with no real knowledge of how credit cards work, and they end up ruining their credit before it’s even gotten off the ground. This happens more often than you would think, and then those 20-somethings might spend well into their 30s trying to repair their credit. 

Finally, talk about debt

Be very honest with your kids and let them know that being in debt is not where they want to be. We have all experienced it; sometimes, it can’t be helped, but you cannot just live with debt. It is damaging to your credit and well-being. Again, emphasize saving money and sticking to a budget. I always say that instant gratification is a money killer and is the quickest road to debt. The only immediate needs you have are food, shelter and (basic) clothing; everything else you can take your time with. 

It’s never too early to start teaching your kids about money. Developing good money management habits and staying out of debt are among the best skills you can give your kids. Get started now. 

Jennifer Streaks is a senior personal finance reporter and spokesperson at Business Insider and a financial contributor at theGrio. A nationally recognized expert on money and affordable lifestyle living, Jennifer is an established financial columnist who has been featured on CNBC, Forbes, ABC, Good Morning America, CBS, and more.

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