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One of the best ways for children to learn about the responsible use of credit is by using it.

Despite Polonius´ admonition, "Neither a borrower, nor a lender be," teach and encourage your children to do both, when appropriate.

Here are some tips and suggestions for the money-lender of the household. At the bottom of this page, click on the icon for a Wise Pockets Parenting Activity: Who Has the Cash? I Want the Cash!

ACCUMULATE CASH. Allow your child to accumulate cash savings (allowance, gifts, and so on) in a secure spot in his or her room.

MAKE CASH LOANS. Encourage your child to put this cash to work by making loans to family members. Emphasize that they have something that other family members would like to borrow -- cash.

CHARGE INTEREST. Children often do not want to part with their cash. Accumulated savings in a piggy bank become a prized possession. Emphasize that when they loan $5 to a sibling, they must be paid back MORE than $5. This will mean more money in their bank for candy, video games, or new skates. Encourage your child to talk about how much he or she would need to charge to make it worthwhile. This makes for an interesting discussion. Remind your child that he or she can only charge an amount someone would be willing to pay. He or she may have to negotiate some with the borrower.

HOW LONG? The discussion on how much interest to charge should be linked to the length of the loan. Most children can easily understand that they should charge more for a one-week loan than for a one-day loan. However, do try to let the lender and borrower work out the loan details on their own if at all possible.

PUT IT IN WRITING. Insist that all household loan transactions be put in writing. Use the familiar "IOU" with exact amounts and dates. Both the lender and the borrower must sign the note. The note should be held by the lender in a secure spot. When the loan is repaid, the lender should write "Paid in Full" on the note and return it to the borrower.


	Who Has the Cash? I Want the Cash!