Learning about finance can be overwhelming, especially when your kids are taking their first steps into financial independence. With lots of jargon and complicated terms out there, how can you help them get their heads around what all the different financial terms mean exactly?
Well, look no further – we’ve put together a handy guide to give them a no-nonsense overview of what some key financial phrases mean, so your kids can get a head-start on their journey to becoming financial experts!
Understanding what a loan is is particularly important for your kids – especially as they grow up and become more financially independent! One great way to explain how a loan works is to outline a scenario they may come across in real life: for example, if their friend borrowed a pound to buy some sweets, and gave them a pound back the next day, this would be a loan.
As you discuss the concept of loans with your kids, it’s worth explaining why borrowing money always has to be carefully considered. Be sure you outline that sometimes when borrowing money, especially from a bank or finance provider, you often have to pay an additional cost on top of returning what was first borrowed – an interest payment.
Credit cards vs debit cards
They’ve probably heard talk about credit cards, but what are they and how are they different to debit cards?
Debit cards, just like your kids’ nimbl card, are like a digital wallet – meaning whenever a debit card is used, the money is directly deducted from the account. So, if there isn’t enough money in the account for a purchase, the payment won’t be made.
Although credit cards look almost identical to debit cards, the way they work is quite different! You should explain to them that rather than the money on a credit card being linked to your account, it is actually borrowed from the bank, so the money spent using the card has to be paid back at a later date.
In short, the best way to explain what a mortgage is to your kids is that it is a special loan people take out when they decide to buy a house. The difference between a mortage and a regular loan is that mortgages are usually paid back over a much longer period of time – usually around 25 years!
Cryptocurrency is a hot topic at the moment – but what is it? Well, it’s a new type of currency in the form of a digital token. It is similar to money in that it has value, but is completely digital, meaning there are no physical coins or cash involved. They do not have a fixed value set by law, like regular money does, so its value can go up and down dramatically!
Learning about money doesn’t have to be complicated! Hopefully these brief outlines and guides will help give your kids a better understanding of some key financial terms – they will be money experts in no time!
Is your child familiar the different financial terms? Let us know via Instagram, Twitter or Facebook – we’d love to hear from you!