Understanding Debt and Avoiding Debt Traps

Happy! Were back and we're excited to bring you Part 3 of our Purposeful Parenting Month series! Last week, we covered money management in today's world. This week, we're tackling bad debt and debt traps.

Here are 5 tips to help your kids understand the concept of debt and its dangers:

Teach them the difference between good and bad debt. Good debt is an investment, like a mortgage or student loans. Bad debt is unnecessary, like credit card debt or payday loans.

Show them how interest works. Explain that interest is the cost of borrowing money and the longer you take to pay it back, the more you'll owe overall.

Encourage saving habits. Saving money helps to avoid borrowing money in the first place. Teach your kids the importance of saving early on.

Warn them about debt traps. These are high-risk loans that can quickly lead to more debt. Examples include high-interest payday loans and title loans.

Set an example. Your children are watching you and how you manage your own debt. Practice what you preach and show them how to manage finances responsibly.

An activity to reinforce these tips with your kids is to play a game of "Debt Trap". The game will highlight the dangers of bad debt and reinforce good money habits. For instance, players can draw a card that has a debt trap scenario and must find a way to avoid it.

Reflect on your own experiences with debt. What did you learn? How can you pass on those lessons to your children? Share in the coments below

And don't forget to Join us next Monday for Part 4 of Purposeful Parent: Money Mindset Monday.