Why We Created A Loan Agreement With Our 12-Year-Old

My 12-year-old son has always sucked with money. He’s the burn-a-hole-in-your-pocket kind of kid. He likes to ask to borrow money, but he isn’t all that good a paying it back. He’s basically your shady uncle with a big time business plan that needs a few hundred bucks to get off the ground. It’s a problem.

So a few months ago, when he asked to borrow money to download a game for our Nintendo, we offered him a loan instead. The game was around 60 bucks. Mel and I found a Family Loan Agreement online (a quick google search will pull up several), made a payment plan, added a percentage, and consequences for missed/late payments. We even broke down how much more he’d be paying with interest. We went all out. We wanted this to be as real as possible.

My wife is the real money manager in the family. I’m better at laundry. She actually put together a spreadsheet that showed him how much he would spend with the percentage over the life of the loan. When she showed it to him, his eyes glossed over and it was pretty clear that he didn’t care about any of that, only the game. All I could think about was the first time I signed a car loan. I told him that the payment would be close to 50% of his “income,” and how that is never a good decision. He shrugged, happily signed, and then downloaded the game.

Two months in, it happened. He didn’t do all his chores during the month, and he bought another game, along with some candy, so he missed a payment.

We held a “financial meeting” in the kitchen, Mel and I sitting on one side of the table, him on the other his hair mashed on one side from sleep, his blue hoodie with crumbs along the front. He wasn’t exactly dressed to impress, but at that age, he never is.

Our family computer open with the payment information, the contract was between us on the table. We asked him about his missed payment, and he gave us a shrug that seemed to say, “What’re you going to do about it? I already passed the game.”

It was then that my wife leaned forward, and read the second paragraph of the loan where he put his game systems up as collateral, and they would now be repossessed until he was back in good standing (minimum payment + $6 late charge).

I half smiled, looked at my wife, and winked. “Gotcha!”

But had we?

He went through a number of emotions in just a few hours.

Disbelief: “How can you do this to me?”

Desperation: “How much can I earn by picking up after the dog?”

Boredom: “I’m sooooo bored.” (Times infinity)

Quiet disdain: Glared at Mel and me for a considerable amount of time, hopeful that we would crack under the shame of his eyes.

And naturally, I was left with the question of: Did we make the right decision?

Gosh, I don’t know. During those first few days, I was 100% confident that he hated me. Perhaps even 150%. I had this deep pit in my gut that he would hate me forever, when what I wanted was for him to have an AHA! moment and realize he learned a valuable lesson about finances that will keep him out of the red for the rest of his life.

Never in my whole life did I ever desire to work for a bank, issue a loan, or draft a contract. I wasn’t not interested in making money off this deal. None of it is for my gain.

This is the tricky part with kids and money. It’s so difficult to help them understand how the real world works. I want them to understand how to manage their own money, but honestly, I didn’t really understand how that all worked until the first time I got a late charge on my rent. I didn’t get it until I was two clicks from getting my truck repossessed. I did get it until I spent almost 10 grand on a credit card, and then had to struggle for several years to pay it back.

So I tried to give my son a little taste of that. But honestly, who really loves the loan officer or repo man? No one. And Mel and I were both of those roles. But I suppose these feelings are normal, right? I hope so.

What I know for sure is that parenting is a gamble: financially, mentally, emotionally. So we stuck to the terms of the loan. We dug in our heels, and hoped for the best, because as much as it sucked for all of us, I kind of wish someone would’ve done something like this for me when I was young. Perhaps it would have kept me from, you know, getting that first credit card and using it for all those video games, DVDs, and burgers back in the late ’90s.

Six months after the loan, and three months after taking away Tristan’s game systems, Mel and I were at dinner discussing what he wanted to do for his birthday.

He asked how much he had. Then he calculated a few things in his head and said, “I could get out of debt with that and still have $10.”

“Yeah,” I said. “That would be a mature decision to make.”

We went back and forth for a bit. He negotiated a payoff number that left him with $20 instead of $10 for his birthday. And he went for it.

I must say, I was pretty proud of the little guy.