FAMILY FINANCE: Teaching Your Child to Borrow Wisely (Or Not at All)
Episode 7:The Debt Trap
Your child has been doing the hard work, earning, saving, and waiting. And then one day, they notice something. You tap a card, and things appear. No cash changes hands. No visible effort. It looks like magic.
To a child, credit looks like the solution to every problem. Why wait for the bike when you can have it today?
This week, we dismantle that illusion, because the most misunderstood concept in personal finance is this: debt is not money. It is a promise to give money later, plus a penalty for breaking your patience.
Here is how to explain it to your child. Borrowing money is like borrowing a toy from a friend. You get it today, wonderful. But you have made a promise to return it. If you take too long, your friend expects something extra to make up for the wait. In the real world, that extra something is called interest.
A £100 bike on a credit card might cost £140 by the time you finish paying for it. Your child worked for that extra £40 and received absolutely nothing in return. That £40 is the price of impatience.
Here is the most dangerous part: debt feels invisible until it is not. The money simply disappears from an account no physical exchange, no visible loss. That invisibility is precisely why adults accumulate debt without realising it. And why do children grow into those adults?
This week’s challenge: The Debt Simulation
Offer your child a “loan” for something they want. Set clear terms; they get it today, but they owe you back the cost plus 10% interest. Let them experience both the joy of having it now and the sting of paying more than expected. When the debt is paid, ask: “Was it worth it?”
Dinner table question this week:
“If you could have something today but paid 50% more, or wait three months and pay the normal price, which would you choose? Why do you think so many adults choose the first option?”
Debt is not evil. Sometimes borrowing is the wisest move available. But borrowing without understanding the cost? That is the definition of poverty, no matter how much you earn.
See you next week
Dr. Mayowa Olusoji
The Money Smart Coach
