Lending for Kids

Borrowing is one of the basic financial literacy skills. Kids need to learn how it works before they enter the real world. It’s an important skill to have so they don’t gather tons of debt in their adult life.

To start off, discuss the different reasons why people take out loans. Buying a car, housing, and college tuition are helpful topics to discuss. Once they know what loans are for, it’s time to teach them how they work.

Here are a few steps to teach them about the process of borrowing. You can follow these steps the next time they ask you to buy them a high priced item.

1. Create a repayment plan

Create a schedule for month-to-month payments. Make sure they pay you in cash instead of deducting money from their allowance. They need to experience the transaction.

2. Charge them interest

There are no loans without interest in the real world. You want to model the exact process to give them a complete lesson.

3. Penalize missed payments

Notify them every month when they miss payments. If they are unable to make their monthly payment, charge them a minor percentage of their payment to instill the importance of meeting deadlines.

Try and make the process as official as you can. Act as though you are a lender at a financial institution. Signed documents, balance statements, and formal seating are some ways you can enhance their experiential learning!

Be sure to let us know how it goes and have fun with the process. Happy lending!!