How to protect our children from debt in adulthood?

Leading by example

Children learn the most by observing the behaviour of adults - their parents. If we are responsible consumers ourselves, it is likely that our children will act in the same way as they mature.

If we talk openly about finances on a daily basis, discuss what we plan to buy and why, and are open about the cost of living, our children will understand that these are important topics that should be discussed in the family and that money issues are not taboo.

When money is treated as a secret, inappropriate topic, financial problems are more likely to arise. The point is not to let children know how much we earn, to make them worry about expenses, or to be involved in making household financial decisions. It is simply about showing that money is not limitless and comes into our lives as a result of work and effort. This will help teach them to think before they spend.

Children should see that we keep a household budget and learn that we shouldn't spend more money than we earn. However, we don’t want children to be afraid of debt. They should know that a loan or credit card is an option for a planned larger purchase, but borrowing money should be done responsibly and with awareness of the consequences of late payment.

Talking openly about the consequences of making unwise financial decisions and running into debt is just as important as providing 'positive' advice on managing your budget. It is not about scaring our children, but about delivering age appropriate information. For example - a seven-year-old will not understand the complex issues of interest rates on a bank deposit, but will easily understand the meaning of saving. As our child grows, we can introduce them to more complicated concepts.

Pocket money - yes or no?

One of the questions parents ask themselves when they want to teach their children the importance of money and responsible spending is whether to give pocket money or not. There are many supporters of both approaches. Those who are willing to give pocket money are divided into those parents who think that the child must ‘earn it’ by doing simple errands at home and those who think that pocket money should be given without conditions.

Whether to give a child pocket money and how much to give is a personal decision. However, if a child does not have money at their disposal, even small amounts, they will not learn to manage it properly at a young age. They will also not know how to save, which is an important skill in adulthood. Having savings is a lifeline when we meet unexpected expenses, lose part of our income or are temporarily unemployed.

Piggy banks: developing a good saving habit

Saving is a good financial habit children can practice from a young age with a piggy bank.

Recent financial crises have shown that it is easier for those who save regularly and build a financial cushion to weather economic storms. According to Intrum’s research, coping with unexpected expenses is the main reason Europe’s consumers save money.

People who do not save may feel that they have to make sacrifices and deny themselves to do so. In fact, it doesn’t have to be that way. The most important thing is regularity - putting aside even small amounts every month will build to a bigger savings pot. This is wisdom we can pass to our children. A child can choose something to save for, such as a toy. They’ll learn that patience and consistency is rewarded.