teaching children about money

acccdac

Wed, Apr 03 2013, 7:51 pm

I went today and opened a bank account for my two older children.

I want them to learn about money and that when you borrow money there is interest involved. However, as jews we can not charge interest.

if my children borrow money from me can I "charge" them interest? I wouldnt keep the extra money, I would even tell them I'm not keeping it and I'd have them choose a tzedakah organization to donate it to, however, can I even "charge" them the interest?

(I want them to understand that if they buy a $10 toy from borrowed money it really costs them more money.)

granolamom

Wed, Apr 03 2013, 8:31 pm

how old are your kids? I learned about earning interest when I opened my first savings account (I was about 8 I think), and I learned about paying interest from talks with the adults in my life regarding mortgages, using credit cards, etc.
I'm not sure I would charge my kids interest to teach them about it. talking should do the trick. and not bailing them out when they charge more than they can pay on their first credit card.

granolamom

Wed, Apr 03 2013, 8:36 pm

acccdac wrote:

again I dont WANT to charge them interest, I want them to understand that if they borrow money from anyone other than me (cause not all jews follow halacha) they WILL be charged interest and I want them to understand that concept

so tell them that. show them your credit card bill and the line where it says 'minimum payment'. ask them if they think you should pay the full amount due or just the minimum payment. discuss why that's not a good idea. get out a calculator. figure out how much you'd owe next month if you just paid the minimum. figure out how much a 40 dollar skirt would cost if you just paid the minimum for a year.

ask them how much they think a house costs. ask them how they think people can come up with so much money. ask them why the bank would lend out so much money. figure out how much the bank makes off a 30 year mortgage. discuss why people borrow so much and if its a good idea. ask them if they think its better to buy a bigger house on more credit or a smaller house but borrow less. or if its a good idea to take out a line of credit on your home for a new kitchen. discuss what happens if you cannot pay later on.

there are so many interesting conversations to be had here, and kids come up with fascinating thoughts and ideas about using money. they learn a lot from you talking and you can learn alot about your kids from these kinds of exchanges.

rather than showing them 'this is what happens' let them in on why it happens and when its a good thing and when its not and all the nuance in between.

imasinger

Wed, Apr 03 2013, 9:06 pm

Just heard about a study on the radio today that said the best way for kids to learn about saving was

- not to give them money (allowance)

- not to set a good example and talk about it

(Though both of those are good ideas)

But rather, to give them opportunities to earn it.

Therefore, rather than charging interest, with all the hyou might do better to provide them with good earning opportunities.

acccdac

Thu, Apr 04 2013, 2:08 am

I was just concerned that talking is not the same as feeling, but I'll probably do it that way (talking about it - "what would have happened if I was the bank and not your mother who you're borrowing from?", etc)

in terms of allowance, the following has been my feelings. my children have chores that they are required to do around the house, since they are part of the family.

There are additional chores that have value to them, and they can do those extra chores for money. I feel this way they realize that there are things they have to do for the family so as an adult you're not playing the "but I work more hours than you, etc" fight with their spouses.

However, if they're willing to put in extra effort, I'm willing to reward them for it.

shalhevet

Thu, Apr 04 2013, 3:13 am

acccdac wrote:

(I want them to understand that if they buy a $10 toy from borrowed money it really costs them more money.)

I would think a much better way to educate them about money, is not to lend them money to buy non-necessities, but to teach them that if they don't have enough money to buy a toy they should wait until they do.

Why are you teaching them that it is acceptable to use money you don't have for a pure 'want'?

Charging interest is assur, and it is irrelevant what you do with the interest.

acccdac

Thu, Apr 04 2013, 10:14 am

shalhevet wrote:

acccdac wrote:

(I want them to understand that if they buy a $10 toy from borrowed money it really costs them more money.)

I dont want to teach them to use money they dont have, my thoughts were that since their money is in a bank and its not "liquid" they cant just buy something at target they want when they're with me because they dont have the money, and wont until they go to the bank later that day or the next, that would require borrowing. I want them to go through such a situation because how many times as adults do we say, well my paycheck will be here tomorrow, and I am here now, I'll borrow and pay (mother/father/whomever) back tomorrow. I want to show them that it is kind of the same concept.

Also I believe that one of the reasons why dave ramsey is so strong with his beliefs about money is because he tried, did it wrong and failed. Failure hurts. It's not that I WANT my kids to feel pain but I also dont believe in shielding them from all of life's pains. Dave is so strong about his feelings because he got burned. Sometimes it takes being burned to learn properly (I'm talking about money not abuse or anything of the sort - so sad that I have to write that here). I'd rather them learn their lesson on a $20 lego set than a $500,000 house

granolamom

Thu, Apr 04 2013, 7:03 pm

How old are your kids, OP?

A child not having access to his money and asking his mom to spot him is a very different concept than putting items on credit, because children are dependant on you to get to the bank. Maybe a teen asking to borrow money until her next babysitting job when she earns more is similar. Depends on the age.
I don't allow my kids to walk around with cash unless it's planned in advance. We don't do impulse buying. They need to think it over for a while, research the item, with assistance if necessary, be sure they are getting a quality item at a good price. Then I take them shopping with their cash. If they are buying online, I pay with my CC and when the item comes, they pay me back. No interest.

shalhevet

Fri, Apr 05 2013, 3:43 am

acccdac wrote:

shalhevet wrote:

acccdac wrote:

(I want them to understand that if they buy a $10 toy from borrowed money it really costs them more money.)

I'm sorry, but I'm more confused than ever.

Why is all their money in the bank? If you haven't left them a few $$ for what they want to buy, you have effectively taken their money from them. In which case, you should be able to give it back to them when they need it. Or take them straight from the store to the bank and then back to the store to buy it.

When you are in a store and need to buy a can of tuna, do you borrow money from a neighbour you spot, then go to the bank the next day and pay her back with interest? Rolling Eyes

You have limited their access to money, created a situation adults do not find themselves in, and now want to use it to teach them something forbidden by halacha???

And even if you were out with your adult daughter and she had left her purse at home, would you charge her interest after you lent her money which she returns the next day?

Tablepoetry

Fri, Apr 05 2013, 4:05 am

I agree with shalhevet here.
It's because of you that they don't have their money on them, not because they don't have money. So it's totally irrelevant to the concept of borrowing/lending money.

I never invested so much time and effort in teaching my kids about money. When they had money, I kept it for them, and gave it when they wanted/needed. I didn't open bank accounts for their use. It seems way too much effort to me. Getting to the bank, finding parking, paying for parking, and then waiting an hour in line to deposit their 200 NIS gift from savta .....the mere thought tires me.
It's also not cost efficient, at least not for me. I never get to the bank. My salary is deposited there automatically, as is most everything else. Small amounts of cash I do not deposit.

How do my kids learn about money? I don't know, really, I never gave it much thought. They know very well that things cost money, and that we don't buy things we don't have money for, and that even when we have money, we need to prioritize. This they learn by our example, and by their own purchases. We are very open about what we want to buy/have money for, there are no major secrets.

They also know how crucial it is to study/work towards a good job and a good income.

But I never emphasized the nitty gritty. Maybe it's a cultural thing? I see among my kids' friends, very few (if any) have an allowance. They ask their parents for money when they need, and either they get it, or they don't. (Ima, can I have 15 NIS for pizza downtown? - either yes, have fun, or no, you went day before yesterday, enough wasting money). If they don't get enough from their parents, some find paying jobs. But I haven't heard of many Israeli parents giving allowances, or even paying for chores.

Tablepoetry

Fri, Apr 05 2013, 4:12 am

I want to add - when I take my kids to the supermarket, I explain why I buy one thing, and not another (for example, sliced cheese cost much less if you buy it at the cheese counter rather than pre-packaged).

The older kids are savvy enough to understand deals and realize which is better value, whether we are talking about buying pizza for the whole family, or an internet package, or sales at the local store.

Bottom line, I think kids learn best when you expose them to real life situations and explain the implications. At the cash register, if the cashier asks if you want to pay all at once or in payments, explain why you chose what you did. Explain also that there are two different kind of payments (at least in Israel) - without interest, and with interest. And that in general, it's always best to avoid any kind of payment if possible, since it always comes off eventually. BUT....there are exceptions, necessary to establishing yourself, like mortgage and car payments.

I personally am not a big fan of bringing money issues down to a kids' level. Kids are smart enough to understand the real deal when you expose them to it, and explain.

amother

Fri, Apr 05 2013, 10:22 am

chani8 wrote:

We try to teach the value of 'if you don't have it, dont buy it.' No loans in this family, thus no interest issues. Going into debt is about houses only, and that is far from an issue for them.

ETA - no credit cards, only debit cards

My kids are growing up as my husband did
They are so excited to give us their money to put in the bank and we remind them that if they save the little money now when they are grown and married they will be much closer to buying a house. Dh says his grandmother would give bday money... And say this is for your house. Toys they get for behavior, afikomen, yom Tov..

chani8

Fri, Apr 05 2013, 10:33 am

amother wrote:

chani8 wrote:

Oh, so you are being the bank? Why? You can open a bank account and the bank gives them the interest, and you can explain that. Or not. The interest is going to be so little anyway. And when they are adults, they will understand. You are teaching 'saving' not 'interest', aren't you?

chani8

Fri, Apr 05 2013, 10:35 am

acccdac wrote:

I would think you should be teaching them about saving, and teach them not to borrow at all.

amother

Fri, Apr 05 2013, 10:42 am

chani8 wrote:

amother wrote:

chani8 wrote:

I guess what I wrote wasn't clear but I said they give us the money to put into their bank accounts (I'm not op)
We show the children how to save rather than how to borrow