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Teaching Your Children About Borrowing

May 16, 2014

When teaching children about the value of money, borrowing should be a component of the lesson. Saving, rightly so, is often a focal point, but as people mature and life gets more complicated, it becomes evident that saving may not always be as glamorous or straight-forward as one would wish. No matter how diligently you save, some expenses require you to use your credit card or take out a loan when the money is not in your bank account. Therefore, teaching your children how to go about borrowing money should be on the ever-growing curriculum of life lessons.

Show Them: When it comes to money, one of the best things you can do is lead by example. Use everyday opportunities, such as simple trips to the grocery store, to find first-hand examples. Children are watching and observing, and down the road their actions are likely to reflect those that they observe in the present time. Teachable moments that can be applied to everyday life are likely to have a greater impact than sitting your child down and giving them a “Money 101” lesson. Find opportunities to address wants vs. needs and necessities vs. extras. If you take the time to share with your child your thought process as you decide to buy something or not, they can better develop an internal checklist for themselves.

Teach Them: Make sure your children recognize that borrowing is a multifaceted activity. Establish the fact that while at times it is viable and necessary, there are implications. Making the decision to use someone else’s money carries with it an obligation. Teach them that along with paying back the money they borrowed, they may also be required to pay interest; an important factor that may make borrowing less appealing. Interest rates and loan agreements are beyond what a child should be concerned about, but valuable and relevant lessons can be learned to prepare them for these complexities that will come later in life. Allow borrowing from the Bank of Mom and Dad to be a test-run to prepare them for what the future will hold.

When making a deal with your child, present the guidelines and expectations from the start. Give them a reasonable timeframe to pay back the money, and ask for a little more back than they borrowed to represent interest. Delegate the chores or jobs that must be done in order to pay off the debt. Teach them the basics first, but over time expand on the ideas of responsible borrowing as their understanding increases and they are capable of taking on more responsibilities.

Guide Them: As occasions arise when borrowing may seem like the best idea, remind your children of the pros and the cons of borrowing. Offer them opportunities to choose between borrowing or saving. If your child desperately wants a new videogame, let them know that you are willing to lend money for the purchase, but emphasize that the videogame is not truly theirs until they pay back what was borrowed. It is important to follow through and remind them that there are consequences when requirements to pay back the money they borrowed are not met. It is better to learn these consequences now when the implications are much milder than when a bank is involved.

As your children grow older, odds are that the amount of money they will look to borrow will increase. Establishing a firm foundation at a younger age will give your child a greater understanding when borrowing becomes a bigger deal later on in life. Set boundaries early and the challenge will not be as great down the road when it is more crucial to enforce them. When you teach your children the pros and cons of borrowing, and provide them with opportunities to make their own decisions, you are granting them the chance to learn firsthand. Money lessons can be tough to teach, but it is important for children to learn these lessons while they are young so that they can avoid making poor borrowing choices when the responsibility solely rests on their shoulders and their credit is at risk. If you keep lessons simple and practical, your children will eventually come to a greater understanding, which will pay dividends down the road in their future.

James Oosterman is the Vice President of Melrose Bank. He can be reached by telephone at 781-665-2500, online at or on Facebook at

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