So Malia's watch that she has had for about 2 years finally broke. She was complaining that she didn't have a watch and didn't have money for one either. I told her to trust me and that I would find a way for her to get a watch.
I found a watch that I thought would would be fun for her.....and of course she fell in love with it and decided that she would all but sell her soul to have it right as soon as I brought it home, however, I had an idea of a life lesson to teach my 9 year old.
Malia: Give it give it give it give it.....PLEEEEEEEEEase.
Dad: OK, OK, OK but there are some rules, things I want to teach you with this. You don't have the money, so I am going to teach you about borrowing and interest and payments, late fees, down payments, the whole works....
Malia: Huh?
Dad: Thats what I thought.
So we sat down and started talking about all those things, and much to my surprise, she got it, understood it and started asking complex questions about it very quickly. She didn't like the idea of paying more than something is worth to just have it now, but was learning the value of waiting and the option to pay someone interest to get what she wanted (and needed) now. She asked if people really do this in the real world and I replied that they do. When I explained how we are buying our house and how much we will have paid for it by the time we are done her eyes got really big and replied "You and mom are getting screwed!"....which tells me two things. 1 - She is starting to get it and 2 - that I need to stop using that term around her.
So I gave her some terms on the $14.00 watch:
Down payment: None
Interest rate: 10% every two weeks
Payment schedule: Monthly
Late Fee: No fee, repossession
Monthly payment: $4.20 (Principle plus interest)
She looked at my terms and suddenly it hit her that the watch may not be worth all that extra money. She also started to figure out that the longer she drags this out the more the watch will cost her and that I would start making money on her. She didn't like that at all. I told her that this is how the world works when lending money. I told her that she didn't need to make any decision that night (Friday) but to think about it until Saturday morning.
The next morning she woke up and told me that she didn't think the terms were worth it and expressed concerns about not having income to cover the payment. I congratulated her on her foresight and thoughtfulness and told her that many people today don't think the way she did. She asked if we could give her an allowance, and I told her no, that we don't pay our kids to be our kids. She then wanted money for doing her chores and I told her that was part of being a family and that I didn't pay for that either. I did tell her that I would come up with things for her to do to make extra cash after her chores were done.
She then still expressed concerns about the terms and I told her then she could go shopping for a better rate. She decided to go 'loner shopping' and I told her that I didn't want to be known as a 'loner' (HA HA) but rather a 'lender'. She asked me who she could go to and I told her Catey or BeBe (Catey's mom) or Grandpa Tal (my dad). She responded "Yeah! Maybe BeBe will just give me the money...." I told her to talk to mom first then call BeBe. She headed out to the garage where Catey was riding her stationary bike and I quickly made a call to BeBe telling her the situation at which she replied:
BeBe: "Sure I will give you the money..."
Dad: "No, no....I don't want that, that is exactly what I am trying to avoid."
I then explained that I wanted her to come up with some terms (any terms) and that Malia would be calling her later and then hung up.
As I hung up the phone, Malia came in from the garage upset, I asked what the problem was and she told me that she explained herself to Catey and asked what her terms as a lender would be. Catey replied (I am sure not wanting to be interrupted) "Business hours on Saturday start at 10:00am, it is 9:30, come back later...".
Malia was less than thrilled.
She did talk to Mom later and here were her terms:
Down payment: 15%
Interest rate: 5% every two weeks
Payment schedule: Monthly
Late Fee: $.50
Monthly payment: $3.36 (Principle plus interest)
She thought parts of that were better and noted that the interest rate was much better than what I had offered but that she had to come up with a down payment and that there was a late fee....pretty smart for a 9 year old!
So she called BeBe and here were her terms:
Down payment: None
Interest rate: None
Payment schedule: None
Late Fee: None
Monthly payment: None
(At this point as Malia is writing all this down, I was thinking, "Aw, cmon...play along Beebs...." but then....)
Length of term: 90 days to repay the loan. If the loan is not paid by 90 days the loan amount doubles.
WOW!!! Who knew Catey's mom was such a loan shark. Malia's eyes got really big and said "That one is DANGEROUS!...I mean, its great if I pay it off in time but if I don't then I am screwed!" (there is that term again.)
So then, disappointed, she said "is there anyone else I could call"?
I told her to call my Dad....here were his terms:
Down payment: None
Interest rate: 4% every month
Payment schedule: Monthly
Late Fee: No fee, but a hug and a kiss
Monthly payment: $1.00
Term: "As long as you need"
So Catey and I are laughing at the late fee, and I mentioned that there are probably plenty of "lenders" that would forgive your late payment or even your debt for a little affection....I don't think that is what my dad had in mind....poor guy.
Anyhow, thought I would pass that along. She chose my dad's option of course. So now all there is to do it write up the contract. I wish my parents had taught me that at her age, I don't think I would have ever been in debt if I learned that with $14 rather than $14,000 or something like that.