Tag Archives: lending money

2.23-blog

5 Questions to Ask Your Teen before Lending Them Money for a Big-Ticket Item

As children become teenagers and begin growing both physically and mentally, parents begin to find their “little ones” get too big for more than just their clothes. A developing teen with tastes and preferences all their own is a teen who will inevitably want to make bigger, more expensive purchases.

Gone are the days of giving little Billy a $5 bill to spend on comics and candy. Teenaged William is interested in buying a car, and he’s looking to you for financial assistance.

But before you throw a chunk of change right in Billy/William’s lap, it’s important to use this opportunity as a teaching moment. Parents should feel encouraged to lend their kids money and be paid back as part of a financial exercise in credit, lending, and timely payments.

As a parent, you should ask yourself these five questions before lending your teen money for a big-ticket item:

  1. I can’t believe my baby is all grown up!

Technically that’s not a question, but children do grow up fast. Try not to get too emotional… let’s move on to the next question.

  1. Does my teen need this item or is it a luxury good?

While even necessary items can cost a pretty penny, it’s those luxury items teens should really learn to budget for. Responsible adults have to weigh all factors when making purchase decisions, often deciding not to buy a luxury item in favor of necessities.

  1. Will this item help my teen advance their education or career?

If your teen needs an item to advance their education or career, it doesn’t necessarily make it a necessity — luxuries can exist within necessity. But purchases that directly link to income (i.e., car for transportation) or education (i.e., text books) are obligations that should warrant a loan. Just make sure your teen actually uses these items once they’ve been purchased!

  1. Can my teen realistically pay back the loan?

It’s difficult to pay off a loan without an income stream. If your teen doesn’t have a part-time or side job, think about implementing an allowance-for-chores system. This will teach them the value of a dollar. If your teen does have a job, encourage them to start saving some money with each paycheck and begin budgeting for loan payments.

  1. Can I establish a payment process that will actually teach my teen something?

The point of the parent/child money-lending exercise is two-fold: it gives teens a taste of adulthood while introducing them to all the intricacies of money management. The exact process you set up for your teen is up to you. Will you set a payment due date? Will you add interest? It’s all up to you. Remember not to distort the reality of the process though, which can provide your teen a false sense of potential consequences.