Monday, April 28, 2008

Teaching Children About Money - Part 1 - Credit

If you are visiting via the Festival of Frugality 124 over at Frugal for Life, let me take a moment to welcome you. Please feel free to browse about and leave comments wherever you feel inspired. If you like what you find, you can subscribe via feed over in my right margin.

Let me start by telling you that I am under no circumstances an expert when it comes to saving money, being a parent, or (certainly) combining the two. Little Nespy is only 2-1/2, so I cannot personally say that this tip works on him. However, I think it is a pretty cool tool, and I would love to pass it along to you.

Now, why teach children about credit? It's inevitable that they will encounter it...and kids are getting offers for credit sooner and sooner. You don't even have to wait until they are in college and getting pounded with offers all over campus about all of the great things that they can buy with this magical tool called "credit." Buy now, pay later--it seems too good to be true. Well, it is and most of us adults know that. However, most of us learned it the hard way. So I'm going to present an idea of how to teach this concept to children to get them to really grasp how credit works and making decisions of purchases based on this reality.

I cannot take credit for this idea, as it was one from a friend, but she does not want to be mentioned either, so I will just call her "my friend" (clever, isn't it?).

So, her children receive an allowance. The amount is dependent on the child's age. The child also is limited to 1 hour of TV during the week and 1 hour on the weekend. They can choose to watch whatever they want (within reason), but they have to make that decision. When the children started begging for more TV privileges, they came to the agreement that the children would pay for additional TV time. For the little one who only got $1 a week, it was a quarter for an additional 30 minutes. They did limit how much extension the kids were given so they didn't spend all their money on TV time and become couch potatoes at the same time. The cost of additional TV time was proportionate to what the allowance was.

When the kids wanted to watch TV, but had used their money to buy some other treat, my friend saw this as an opportunity to teach them about credit. Within the confines of the amount of extended time allowed watching the tube, the kids could "buy" TV time with credit, which carried an additional 20% interest per day until it was paid for. So for the little one, who paid $0.25 per half hour. It costs an additional $0.05 per day until the debt was paid off. Once they were spending $0.50 or more for an item that should have only cost $0.25, reality set in and they began deciding that it was not often worth the extra money. Sometime a really good show with a quick pay-off period was considered worth it, but it really started them thinking about their purchases and evaluating if the shows were worth the extra investment.

I think this is AWESOME! What do you think?

Continue here to Part 2 - Giving
Continue here to Part 3 - Saving
Continue here to Part 4 - Spending

Photo credit: qwurky


  1. Nice article. At 100%+ interest per week, I can understand why they would avoid credit:-) I wonder what they would do at a lower rate, say $.01 per month, which is still 50% interest for $.25 on an annualized basis?

    Here via FoF 124

  2. super saver--that would be more real-world applicable, but I have to say that children don't typically think in long-term. At the end of one year, they aren't going to remember watching TV and it will seem pointless to them. Don't you remember how long it once took for a year to pass? I think the method they use is much more realistic in keeping it in the child's mind and making it more of an impact in today's terms.

    Just my opinion though and I welcome any others!

    Thanks for the feedback!