We started our debt free journey with LOTS of consumer debt. About as much as our gross income. Yep, we screwed up…..BIG TIME.
I remember the day when we sat down and told our four kids that we had made a mess of our money. A BIG mess. We expected them to be ticked. I’m not sure why we expected them to be angry. I mean, it must’ve been obvious to some extent that money wasn’t great by the amount of times we said “no” to anything fun as we struggled to pay the bills each month.
“How did you get into debt?” the then-five-year-old asked.
“Well,” I answered with trepidation, “We spent more money than we had for a lot of years.”
“How can you spend money when you don’t have it?” he replied.
Kids are so logical it’s annoying.
Next thing we knew we were educating our kids about credit cards, about how they give you money to spend on stuff but then ask you to pay back more than you borrowed because of interest.
It was then that the uselessness of it all become crystal clear. The uselessness of keeping up with the Joneses. The uselessness of caring what others think about what we owned or didn’t own. The shock when we realized that we were okay with giving our money to the banks instead of keeping it for ourselves.
We told the kids about how we always believed that wealth was a “luck of the draw” thing: either you had it or you didn’t. And about how we found some info online (the blessed world of personal finance blogs) that showed us that we didn’t have to stay deep in debt and struggling for money.
We told them that we wanted things to be different for our family; that we didn’t want to have to struggle for money anymore. And we told them that our journey to debt freedom meant money would be really tight for a while as we reigned in spending and put extra cash toward debt.
We then made a budget for the first time in our sixteen years of marriage. Like Brian and his family, we used tools like Dave Ramsey’s debt snowball to make a plan for getting out of debt.
And we told the kids that as we worked to pay off debt we were going to teach them a better way of handling money so that they could avoid the mistakes that we made with our finances. Here’s what we’ve taught them (and ourselves) along the way.
Accountability Increases Progress
Because the kids know about our debt and because we’ve made the journey out of debt a family deal, they keep a respectful but honest eye on our spending. We’re pretty self-policed now, but in the beginning it was hard to change our ways. The kids stepped up when we were considering a purchase that was frivolous, and asked if we “really needed” to buy that.
Likewise, when they get money from gifts or from working (paid for chores, jobs, etc.) we ask them what their plans are for the cash. We encourage them to put at least something into savings and to plan ahead for upcoming expenses like sibling gifts or things they want to buy. We try to encourage them to avoid spending the money simply because they have it and to be thoughtful about how they manage it.
This dual accountability plan helps our kids to take positive correction, and also give positive correction. It has given them the confidence to approach us as authority figures and say “Are you sure that’s the best move?” and to work as a team with our family to improve our financial situation.
“No” Means I’ve Got Something Better Planned
At first when we began our journey, a couple of the kids had a hard time with the adjustments. They felt a bit short-changed at our new smaller spending limits on everything.
Like Brian and his family, we changed how we lived life. We cancelled cable. We switched to a much cheaper cell phone plan. We wanted something different, so we started doing things differently with our money than we had in the past. We helped the kids adjust to the changes by helping them envision the big picture.
When we started our journey we were paying $1200 in interest payments each month. As we shared this with the kids, we asked them to imagine how life would be different if we could keep that $1200 each month. What would that mean for our family? What vacations could we go on? What would it be like to have a nice clothing budget each month (three of our four kids are girls ).
Helping them to envision that our actions would lead to a better future meant that “no” wasn’t a rejection, but simply a “let’s hold out for better things”.
Make Purchase Decisions on What’s Best for You
We’re also helping the kids to avoid falling into the trap of caring what others think about their possessions. We remind them that styles and gadgets come and go and are always replaced with “newer, bigger, better”, revealing the futility at working to “have it all”.
Instead, we encourage the kids to follow our lead and to determine for themselves what their short, medium and long-term financial dreams are.
College Doesn’t Have to Equal Debt
Another thing we’re working to teach our kids about money is that college doesn’t automatically have to come with student loan debt. We’re working hard with them to discover what it is they are meant to do in life and whether or not that requires a college degree. If it does, we’re actively researching the many different ways to obtain a degree and avoid debt, such as:
• Taking advantage of our state’s PSEO (College credits while in high school) program
• Searching our local community college courses for completing the first two years of school
• Setting up 529 accounts and other savings vehicles that will help pay for school
• Working to save money before it’s time to go to college
• Considering a local college so they can live at home while attending school
• How to live a frugal lifestyle in general so that “extra” college costs are minimal
• How to position themselves for approval for scholarships, etc.
The goal is to help them graduate with little or no debt, and to encourage them not to go to college without a plan and a purpose.
Financial Independence is Attainable
We also work a lot at teaching the kids that financial freedom is possible. We share interest calculator calculations and encourage them to save money. As they watch their bank balances rise – and our family’s net worth increase – they become more and more convinced that good money management is a choice and not just “luck of the draw”.
As we’ve worked our journey out of debt we’ve kept the kids involved every step of the way. We have an Excel spreadsheet that lists each month’s expenditures, debt balances and debt totals. We’re not out of debt yet, but we’re getting there. And each month, when we see forward progress in our financial goals, we have a little bit more peace, knowing that the confines of debt won’t hold us hostage much longer.
Laurie is a wife, mother to 4, and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom, and to a simpler, more peaceful life.