Grade 1 Lesson 6: #Borrowing and #Debt

It is important for kids to understand what borrowing and debt mean early in their lives. An easy way to explain this to #kids:

Arin, a 5-year-old, wants to buy a new toy. The price of the toy is $5 but Arin has just $3 in his piggy bank. He goes to his friend Sara and asks her for $2. Sara tells Arin that she will give him the money but he has to pay back $2.5 within 1 month. Arin agrees.

Debt is money one person #owes another. Typically, the person who borrows the money has a limited amount of time to pay back that money with #interest (an additional amount you pay to use borrowed money). In our example above, $2 is what Arin "#borrowed" from Sara and thus is the "debt". The additional amount that Arin has to pay for borrowing $2 is $0.5. This $0.5 is the interest.

It is beneficial to discuss the concept of debt with your kids early. A recent study found that #children as young as 8 are highly aware of their parents’ #financialissues, even if parents don't directly discuss with them. Children also start to form ideas around #financial #concepts when they are very young.

As you discuss debt with your kids for the first time, it may be worth discussing "good" debt vs. "bad" debt so they don't feel that all debt is bad. #Gooddebt is borrowing money for things that theoretically increase in value, like a house, or increase their earning potential, like a student loan. #Baddebt is #money spent on things that lose value almost immediately like cars, clothes, etc.

Lastly, while you want to teach kids the right financial concepts, you don't want to burden them with your #financialissues. Keep this in mind as you talk to them about the above.

#finance #education #financialliteracy

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