Helping Kids Understand Credit

In 2007, I was hired to manage the youth & family programs at REACH CDC.  Chief among these was the nationally renowned youth individual development account (IDA) program, Youth$ave.  IDAs combine financial education with matched savings toward the purchase of an asset.  Together the education and the asset empower participants to break free from poverty and become more self-sufficient.  

When I started, there was a problem: youth in the program were not retaining information from the lessons on credit. Since poor management of credit is among the most devastating financial bad habits, addressing this was a top priority.

What vs. How

I reviewed the curriculum and found that the lessons addressing credit contained all of the most important concepts.  The content wasn't the problem.  The problem was that the concepts were too abstract for the audience.  Youth in the program, who were aged 9-18 years, had no personal experiences to connect with credit concepts, and therefore did not retain the information.  

Experiential Learning

Between my social psychology background and my direct experience working with youth in a variety of settings, I had a strong hunch that the best way for kids to learn about credit was to experience it first-hand. I couldn’t just tell them about compound interest, fine print, or fees - they had to have the experience of buying beyond their means and getting buried in debt.

Too many adults learn about credit in exactly that way, and have to spend years of their lives trying to dig out of the financial hole they’ve dug themselves into. Lucky for the kids I was about to give them the same experience in a context where the stakes were not so high.

Gamification

Instead of re-writing the lessons on credit, I threw them out completely. There would be no lecture or worksheets on this topic anymore. Instead I brought in a huge stockpile of toys, candy, art supplies and other goodies that I knew the kids would want. I set up a class store where the kids could purchase these things, but the catch - the store only accepted credit cards.

“Credit cards?” “Yes! All you need to do is sign this contract to get one!”

Kids signed up and began buying real items with their first credit card. They were given time at each class to shop at the store, provided with income for attendance and other class activities, and had check books they could use to make payments toward their credit cards. They were told from the beginning that their goal was to purchase at least 10 items of any size over the course of the program year, and have their purchases fully paid off by the end of the year.

The Fine Print

Since none of the kids had ever had to sign a contract before, I was not surprised to see that they didn’t really read it before signing. None of them noticed the fine print down at the bottom, which contained one particularly nasty item - exorbitant extra fees for anyone who did not put their initials on the line.

They also didn’t give much notice to their interest rate, minimum payment requirements, or other somewhat complicated terms and conditions in the contract. By and large they simply trusted that since I’d given them the contract to sign, it would probably work out just fine. All according to plan!

Introducing: Debt

The kids bought toys and treats with their shiny new credit cards, and all seemed well at first. Free stuff!

Then came the following class, when kids were given account statements showing what they owed. Unsurprisingly, many were confused about the large fees and interest charges that were showing on their accounts. I took time to assure them that everything was in accordance with the contracts they had signed. Eventually some of the older kids asked to see their contracts again, and things got very interesting when they took a closer look.

That’s All For Now

I haven’t quite finished this project description yet, but I love talking about the things I’ve done, so if you are curious please ask!