First loan at five

Yes, my son was in hock before he made it out of kindergarten.

When you’re five, time is a hard concept to pin down. A week can seem like a lifetime and a month – an eternity. “That’s going to take forever!” is a common lament heard in our household. So when you’re five and your allowance is a paltry $2 a week, saving up to buy something big can seem impossible.

I guess I should have known that before long, Adam would ask for an advance on his allowance. He didn’t know about loans, per se. But he wondered if his dad and I might give him the difference between what he had in his piggy bank, and the cost of – what else – another video game.

All he needed was an extra $10. Looking at it as a “teachable moment,” we decided to give him his first loan. (Interest free, of course. That's a lesson for another day.) Yes, my son was in hock before he made it out of kindergarten.

But I don’t think we’ve sent him down the slippery slope of debt. Now, at two weeks post loan, with the instant gratification of getting what he wanted long gone, he’s felt the hurt of having to give up two allowance payments to pay off the loan. Plus, we still have three more “no allowance” weeks left on the calendar. I think by the end of it, he won’t be so eager to borrow money again.

Wouldn’t you prefer your kids learn this lesson when the stakes are low, rather than when the banks happily give them their first credit card?

About the Author

Tamar Satov

Managing Editor, CPA magazine
Tamar is a journalist specializing in business, parenting and personal finance. She blogs regularly in this space with advice and anecdotes on her efforts to raise a money-smart kid.