Let's face it our schools are not teaching our kids about personal finance. It is important that you teach the skills to your children at home so they can make informed financial decisions. One way you can do this is by taking real-life examples from your personal finances and explaining how they work to your children. Most parents have mortgage loans which they must pay each month. Showing your children how these work can be a great learning tool.
First they must understand the relationship between interest and principle and how this affects monthly payments. I suggest getting some type of simplified accounting device such as beans or some other mortar to demonstrate how mortgage loans work by showing how each payment is divided between principal and interest. You can also demonstrate how principal payments have an effect on the total amount of interest due. Also, you can use this to show the very real impact that small changes in interest can have on the total amount due. In this way you can demonstrate that it is important to have lower interest rates and to avoid high interest debt.
There are online calculators which you can also use to show them some real numbers that demonstrate this point clearly. Then you can relate this back to the home which they are living in and explain the benefits of home ownership along with the lesson. In this way they can tie in this simple financial lesson with their everyday life and make it something real and therefore more memorable.
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