For the life of me, I never thought I would one day come across a case of an infant troubled by debt. Well, I was proved wrong by a story that ran in the New Vision newspaper of a pupil in primary three who fled school because he was too heavily indebted to his fellow pupils.
The issue of debt problems among school-going children first came to the attention of our company about five years ago. We were then facilitating a money and life skills training for teenagers and in the discussion with the students we got to learn that many school children routinely borrowed money from school based money lenders. The interest rate on the school credit facility is usually 100 per cent whenever payment is due.
Here is how it works; Tom who is broke borrows Shs50,000 from Johnnie, a fellow student who is the school loan shark, and agrees to pay back twice the amount borrowed when his (Tom’s) parents bring pocket money on the visitation day in three weeks time. When Tom’s parents come for the school visit, they will be given a tall story designed to extract as much money from them as possible in order to pay the debt and yet leave Tom with some pocket money as well.
There a number of reasons why a young person like our hypothetical Tom ends up being indebted to the school loan shark.
First, some adults are not the best financial role models for the young people. For example, there have been reports in the media about some members of Parliament who took huge loans the moment they were sworn in and these individuals will not be taking home any money for the whole five years that they will be in the legislature. Even closer in households, it is reported that more than 50 per cent of the loans given by formal financial institutions are for consumption purposes.
Often times, the children who engage in heavy borrowing have fairly well to do parents or guardians. The challenge faced by these parents and guardians is to find the best way to motivate and inform their dependants to embrace healthy financial habits.
The modern parent possibly had an economically difficult childhood and youth complete with experiences such as being responsible for getting the goats from grazing and back into the homestead after school; and using a papyrus mat as both a mattress and a duvet for the night sleep.
Those childhood difficulties proved to be a strong motivation for attaining a better economic condition, no wonder many people use the Luganda saying “Sidda mu kyalo” meaning I will never go back to the poverty state I went through as a young person while growing up in the village.
Every time the modern parent reminds today’s young person about the past hardships he is met with an immediate response, “That was your time.” Besides a well-to-do parent feels fake trying to preach “the virtues” of poverty to his or her child.
Ask for accountability
Another reason why children are growing up with poor money habits is that few parents ask their children or dependants to account for the pocket money they receive or spend. Some parents think their roles stop at dishing out pocket money to a child; how wrong they are.
One parent, whose children are now all grown up never stopped at giving pocket money to them. The parent made it known to the children that whatever pocket money they received would be treated as a loan that could be recalled if not properly accounted for.
During the school term, the children maintained meticulous records of their expenditures, down to the cost and number of pancakes or whatever else was bought on each day of the term. The pocket money for the next term depended on presentation of acceptable accountability for the previous amount.
In an environment that is becoming more monetised, the writing is on the wall; the child with poor financial knowledge and habits is going to be easy prey of financial predators from a very early age. Raising financially smart children is no longer a luxury but a necessity.
What parents can do
Today, many children go to college or get their first job without a basic understanding of budgets, debt, and saving.
Parents can make their children work for their money. Once your child is old enough to understand what money is (maybe age 4 or 5), it can be useful to give them a small allowance. This could be anything from $0.50 to a few dollars a week and will give your child a small amount of money to be financially responsible for.
Better yet, you can link the allowance to chores — they’ll learn that money is something they earn, not something they automatically get.