Why parents are creating 'loan contracts' with their children

A young mother-of-three has explained why she created ‘loan contracts’ for her two sons to learn about the value of money, interest and credit ratings.

, who lives in , spoke about her money saving strategy on Instagram, pointing out that her sons Jordan, 12, and Tawera, nine, were looking to buy electronics but didn’t have enough cash by themselves. 

‘Two children wanting to buy a each at $425 and one also wanting to purchase a TV at $65,’ she wrote.

‘After months of saving chores money, money and birthday money both children’s bank accounts are at $350.

‘As parents, my partner and I were faced with two options of teaching our kids life lessons.’

She said that the first one was to simply explain to them that they don’t have enough yet and to keep working hard to save until they have the correct amount.

Or they could teach them about loans, loan repayments and credit ratings if money is paid back on time without any issues, ‘and the serious matter of added interest and even debt collection’.

They opted for the second choice and visited Cash Converters to buy the items their young son’s desired. 

‘My partner wrote out the contract and the boys signed it.
At this stage the boys are in debt with the understanding that for the next X amount of weeks they will be doing their chores to pay off their loan repayments,’ Nicola continued.

‘We explained the further details about interests with loans but decided against including the interests in their contracts.’

Nicola reiterated that it’s never too early to start teaching your children about money and the modern world.  

‘Just last night Tawera sold his computer to our daughter Russia for $160 in order to pay off his loan faster and Jordan is considering selling his old PlayStation for the same reason,’ she said.

‘I absolutely love this for them.

I feel as though growing up I personally knew nothing about things like this and my credit rating reflected this at the age of 19.’

While she acknowledged that some may disagree with this particular style of parenting, it works for their family. 

‘My partner and I are preparing our children for the real world,’ she said.

‘Such a great idea.

I didn’t know much about money and loans when I was younger and wish I had been taught from an early age. Would have saved me having to learn a lot of hard lessons later in life,’ one woman replied to the thread.

‘I think this is a great learning experience.
Well done to the parents! I understand there are pros and cons with this, but better to learn with the parents rather than finding hard truths when they get older,’ said another.

A third added: ‘With the amount of under 20 year olds I see with destroyed credit and heavily indebted, I wish there were more teaching from a younger age around the importance of it all’.