April is Financial Literacy month – that’s no “April Fools” joke! You may not think of yourself as a money mentor, but think again. Just as we all have different money styles due to upbringing and life experience, we all have different parenting styles. These two style factors merge and sometimes clash the instant you gaze into the eyes of your child.

Spending and planning issues flash before you on a daily basis. Everything from clothing to cribs to college savings can turn that divine bliss into an angry hiss over money matters!

Meanwhile, that precious child grows and grows, noticing all kinds of things about you.

Let’s call this merged parental identity “Money Model” because that’s what kids remember most. A psychology professor said, “Kids are wonderful observers but lousy interpreters.” Here’s an example.

Making the Message Stick

A parent tells the kids it’s important to live within their means. If they’re young, they don’t even know what that means, do they? Somewhat older kids have a notion of what it means. But for years if the kids observe piles of credit card bills at home, which message sticks? Live within your means, or debt is ok? More than likely, rather than living within their means when they grow up, they think, “No problem. When I don’t have the money to buy something, I’ll charge it.”

And what if you use your credit cards for convenience only? You pay off the entire balance every month. Perfectly fine. Great discipline. Maybe even brings a wealth of frequent flyer miles! But how do your kids know? They need you to inform them. Share your wisdom about money in a coaching style. There are ways to teach and coach them even if you don’t want them to know your specific numbers.

Remember, as the professor said, children are ‘lousy’ interpreters. They make up rules and conclusions as they go. More often than not, those conclusions are riddled with errors. Next thing you know, they’re grown up, guided by their mistaken interpretations and they don’t even realize it.

The best combination is to be both “Money Mentor” and “Money Model” – coaching good basic financial principles and modeling them as well.

This is where your computer can help. Below is a powerful lesson in credit card expenses. It’s the magic of compound interest – in reverse!

Computer Calculator Coach

Use an online financial calculator with your children, grandchildren, nieces, or nephews (even if they’re young adults). You can show them how quickly credit card interest adds up if the balance isn’t paid off. Be an excited coach. There’s nothing wrong with saying, “I wish I’d known this when I was your age! You’ve got time working for you – let me show you how amazing this is.”

Most online calculators have a button to show paying off credit card debt. They have simple prompts and you simply fill in the boxes with your example.

Here’s an example:

Have them guess how many dollars in interest would be charged on a $1000 balance at 18% if only the minimum due is paid. How long would it take to pay it off assuming a $40 per month payment (4% of $1000)? Some credit cards only require 2% for their monthly minimum payment. What are the numbers then? Again, have them guess. Then show them the results.

Answers to the above questions:

On a $1000 balance, paying $40/month at 18% interest:

It would take 2.7 years to pay it off

The interest charges would be $263

On a $1000 balance, paying half the above amount, so $20/month at 18% interest:

(Logic might say, half as much is being paid so it would take twice as long, right?)

WRONG!

It would take 7.8 years to pay it off (vs. 2.7 years) – nearly triple the time!

The interest charges would be $862 (vs. $263) – over triple the dollars!

In teaching a basic financial principles class to about 7000 local high school seniors over 11 years, NONE of them knew this credit card reality. It was the topic they mentioned as most valuable afterwards.

Try out additional scenarios so your young mentees can see the big differences. Show paying higher amounts to see how much less the interest charges are and how much more quickly it’s paid off.

These credit card calculations with positive coaching can make a HUGE difference for your kids’ futures. It motivates most people to make higher payments toward getting rid of the debt. It sheds a new light on spending decisions, too. And that’s more than an ounce of prevention!