Comments on: Should You Charge Your Children Interest?

By: Festival of Frugality | On a Quest To Be Debt Free...

Festival of Frugality | On a Quest To Be Debt Free... — Tue, 11 Nov 2008 21:35:46 +0000

[...] Credit Card presents Should You Charge Your Children Interest? posted at Ask Mr Credit [...]

By: karla (threadbndr)

karla (threadbndr) — Wed, 05 Nov 2008 21:12:17 +0000

My son is 22 and doesn’t have any credit established yet (he’s active duty military and hasn’t ever gotten a credit card). He paid cash for his HS car and sold that one when he left for Iraq, and used part of his oversea’s earnings to pay cash for his current car.

Therefore, when he needed his very first loan (he keeps a very modest efund, living the barracks), he was declined. I didn’t want to co-sign, so I loaned him the money. We had a written contract and I charged him what the credit union would have charged. He put me on an allottment (auto draft from his pay check).

When he’s home on leave next, we’ll be heading over to our credit union and getting him a share secured loan or credit card. He needs to start building his credit now.

When he was younger, I was still in my spend, spend days, but he saw how awful our finances were when his dad died and we were on a strict budget the last year of HS. He knows that credit cards are “teh evil” and only to be used if paid off asap.

He’s actually told me “The Corps pays me X, I spend x-$100. Because that Murphy dude – he is a Grunt! and he’s always coming ’round.”

By: Festival of Frugality 11/4 Election Day Edition | Bargain Briana

Festival of Frugality 11/4 Election Day Edition | Bargain Briana — Tue, 04 Nov 2008 16:48:35 +0000

[...] CC presents Should You Charge Your Children Interest? posted at Ask Mr Credit Card’s [...]

By: ConnieB

ConnieB — Sun, 02 Nov 2008 01:13:45 +0000

Sara,

Yes, that’s definitely better advice! I really do believe that saving should be taught to a child first because that will offer them the greater benefit throughout their lives.

I am thinking that with my daughter, I may use simple savings charts, to help her count down the dates and the amount of time she will need to save up for something. It will help her weigh her purchases first. If she has to save eleven weeks for something, she may think twice about it. Certainly she will think more about it than if I just loaned her the money!

Thanks!
Connie

By: Sara

Sara — Sat, 01 Nov 2008 15:39:55 +0000

Don’t worry, I didn’t feel misled by the title, just surprised… I’m not saying that you shouldn’t teach children about the details of lending money, but do you really have to offer a loan as an option in order to do it? I mean, you could explain that, for a $100 item the kid wants, she could save up $10/month for it and buy it for $100 after 10 months, but if she borrowed the money at 20% interest to buy it now and paid it back at $10/month, the same item would cost her $110 and it would take 11 months to pay back… and that’s why it’s much smarter to save up for something in advance. Then maybe saving money in advance instead of buying on credit will become a part of who she is.

By: ConnieB

ConnieB — Sat, 01 Nov 2008 05:55:50 +0000

Sara,

I’m really sorry that the article title mislead you! I was wanting to make the point that I intend to teach my daughter about loans, credit cards and interest as early as possible, so that it becomes a part of who she is.

I think covering the details of loaning money to older children is an excellent idea, thank you. I will do a post specific to that in the future.

I absolutely agree that younger children should save first rather than take a loan.

By: Sara

Sara — Sat, 01 Nov 2008 04:45:26 +0000

Well, I don’t have kids, but I guess I don’t understand why young children would need a loan. (When I saw the title of this article, I thought it was going to be about lending adult children money, e.g., for college.) If your kids want something, they should save up to buy it. I think it’s much more important for kids to learn that lesson.

By: ConnieB

ConnieB — Fri, 31 Oct 2008 18:34:07 +0000

I see your point Lee. The “paying back” part of the lesson is the most important. I think the concept of interest works best with different age groups, but paying back what you borrow works with young children on up and is what you have to teach first.

Makes sense to me.

~Connie

By: ecards

ecards — Fri, 31 Oct 2008 18:28:20 +0000

I think the idea of being disciplined with your child about paying back the loan is the biggest part of the lesson they can learn and can by itself give them a real world feeling for borrowing.

Adding the concept of interest on top of disciplined payback – I’m not against this per se, but I think it’s an incremental lesson they learn rather than a fundamental one.

2 cents,
lee

By: ConnieB

ConnieB — Fri, 31 Oct 2008 17:06:48 +0000

Thanks an excellent idea Susan, and it sounds really fun!

I was wondering about which “terms” I was going to set if I loaned my daughter money – I hadn’t thought of anything like that.

I am really glad to hear that it is working so well for you and your son too!

~Connie