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Family Finances: Teaching Your Kids About Debt

George Grombacher April 21, 2022

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Family Finances: Teaching Your Kids About Debt

“No one can serve two masters. Either you will hate the one and love the other, or you will be devoted to the one and despise the other. You cannot serve both God and money.”
– Matthew 6:24


Can you get rich? Yes.


Can you have everything you want? Yes.


Is it also possible for you to be broke? Yes.


Is it also possible for you to have nothing? Yes.


I want to help you to help your kids avoid the latter two scenarios. 


In fact, what I want is to help you help your kids find financial security, then move on to financial prosperity. But we need to do first things first. 


Just as your first job as a parent is to protect your kid from the danger of running into the street and not sticking metal objects into the outlets, you must teach them to avoid falling into the burden of debt. 


Once you’ve done that, you can help them figure out how to find prosperity. 


And that’s what I want to talk with you today, here’s what we’ll cover:


  • Why this is so important

  • The financial medal platform

  • Weapon of mass destruction

  • Credit cards

  • Acceptable debt


Let’s get started.


Why this is so important


Your kids won’t grasp the importance of avoiding debt. When you’re young, you’re full of hope for the future, and we have a hard time putting things in perspective. It’s way too easy for kids to sign up for massive amounts of student loans. 


As a parent, it’s your job to help them avoid these mistakes. 


What’s at risk? 


Their futures. 


Think about it. When you’re a kid, all you’re doing is living. 


What happens when you take on a bunch of student loan debt? What happens when you sign a lease and take on a car payment? 


You stop living and you start surviving. 


You’ve gotta find a job to service your debt. It’s probably not going to be your dream job. Maybe it’s a job you hate. But you’re stuck. 


You don’t want that for your kids, and neither do I. We need to help them avoid falling into the trap of debt. 


The financial medal platform


Here are the three keys to teach your kids, presented in a fun way. The top three finishers of an Olympic event get to stand on the medal platform, get their medals, and have their country’s anthem played. In terms of personal finance, here are the gold, silver and bronze equivalents. 


Gold medal: Pay yourself first. This means you create the habit of paying yourself (contributing to your financial priorities) before you pay anyone else. It commonly means contributing to a 401(k) or IRA. Imagine helping your child to start putting money away for their financial futures at 16 or 22 years old. Helping them to learn this skill will set them up for long-term financial success.


Silver medal: Stay out of debt. Not rocket science, but the majority of Americans are broke, living paycheck-to-paycheck and saddled with credit card and student loan debt. If you can figure out how to pay for college without loans, and how to help your kids properly use credit cards, you’ve again positioned them for success. 


Bronze medal: Diversify your investments. This means not putting all money into one concentrated investment like an individual stock. It means owning many different types of investments like stocks, bonds, real estate, crypto and commodities. The easiest way to make this happen is to teach your kids about low-cost ETF investing. We have a lot of resources to help you with this. 


Keep these three ideas top of mind as you’re thinking about teaching your kids about money. They’ll go a long way to helping. 


Weapon of mass destruction


Over 40 million Americans have student loans, and the average amount is around $30,000. Some have less, some have way more. 


Here’s what I want to impart on you; it’s possible to help your kids go to college without taking out loans. It’s important you believe that to be the truth. 


Once you accept that reality, then you can figure out how to make it happen. 


  • If possible, you can be saving on their behalf. You don’t have to save up enough to pay for all of it, save what you can. 


  • You can pay for it as they go. This is certainly an option. 


  • They can work and pay for it themselves. Making the “right” college choice can mean going to community college, or a state school with affordable tuition. 


Commit to helping your kids figure out how to graduate from being a student without student debt. 


Credit cards


I use credit cards, so I’d never tell someone else not to. That being said, you need to use them correctly, meaning you need to pay off the balance every month. Failure to pay the balance means you’re paying high interest charges and using credit incorrectly. If you’re doing that, you need to stop. 


Teaching your kids about the how credit cards work is an essential lesson they must learn. 


Acceptable debt


There’s a lot of talk about “good” debt and “bad” debt, and that’s fine. Here are three types of debt I consider acceptable. 


Car loans. Odds are, you need transportation. Please make a good decision and don’t overspend on your car. 


Home loans: Same advice here; don’t become house poor. 


No-interest loans: Utilizing a no-interest loan to buy something like furniture or to finance a home improvement project is fine with me. 


The future


Imagine your kids when they’re 22. Now imagine two versions:


The first version embraced the financial medals. They pay themselves first, avoid debt, and take a diversified approach to investing. They’ve got money saved, and have developed positive habits. The future is wide open. 


The second did not. They’ve got $50,000 in student loan debt, and $2,500 in credit card debt. While their future is also open, they need to find a job to start paying back their loans. 


It’s obvious which version I want. 


You’re in position to make this happen. 




If you’d like to help your kids get good with money, check out our Teaching Kids about Money course.


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