Dec 12, 2013 KV Kiva HQ
By Brandon Smith
How to Teach the Importance of Microfinance to Kids


We're excited to have the following post from Will Sutton -- a Kiva Contributor. Will is a father, entrepreneur, and writer who discusses topics related to personal finance and business.
 
Kids should learn the fundamentals of finance from a young age, and since schools generally do little to that end, the responsibility falls mostly on parents. Showing children the importance of saving money, the dangers of credit card debt, and the benefits of effectively managing their finances are all essential elements of parenting. In addition to these basics, however, is the subject of microfinance. Despite its name, the concept is a broad one, so let's begin by defining it, explaining its importance, outlining a few examples, and then detailing the best way to educate your kids.
 
What Is Microfinance?

Kiva defines microfinance as "any smaller-than-average loans made to people who would otherwise not have access to capital." This includes unemployed individuals and those with low incomes. Although it may seem like a financial option geared toward folks in poor or less-developed countries (which it certainly is) there are plenty of examples of microfinance right here in the United States.
 
Examples of Microfinance

Microfinance takes a variety of faces, shapes, and forms. Among them are the following:
  • Personal loans to poor people in the U.S. and in other countries
  • Business loans to aspiring entrepreneurs here and around the world
  • Pawn shop loans
  • Payday advance loans
How To Teach the Importance of Microfinance to Children
 
When you begin to think about teaching microfinance to your kids, it's important to personalize your approach. If you think your children may need microfinancing one day, educate them on the best options available and how to avoid getting scammed. For example, options such as pawn shop loans and payday advance loans typically come with sky-high interest rates, and should be avoided at all costs. It may be worth your while to explain how your children can avoid ever needing these options. Although the main goal of microfinance is not income generation, you may also want to introduce that facet of it into your conversation – but don't forget to teach them the benefits of giving back and helping others.
 
Why It's Important
 
According to The World Bank, over 500 million people have benefited from microfinance, either directly or indirectly. Therefore, it should obviously be on your children's radar no matter what position they take as they grow up. You can use it to illustrate the importance of helping others in need or as a means of generating income. The choice is yours but should always be based on your individual situation. It's also important to explain the potential dangers of microfinance such as high interest rates, and how proper financial management is essential in order to avoid those dangers.
 
Conclusions
 
Microfinance is a largely underreported means for individuals to obtain cash they may need for personal or business use. Although it's popular in countries outside of the United States, its importance here is essential for the under-banked. No matter your kids' level of personal finance education, introducing microfinance into the conversation can help ensure they develop into well-rounded financial managers and individuals.
 
What are your thoughts on microfinance and kids?


One of the top personal finance and lifestyle sites, Money Crashers aims to develop a community of people who try to make financially sound decisions. Their website strives to educate individuals in making wise choices about credit and debt, investing, education, real estate, insurance, spending, and more.

 

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Brandon Smith Brandon is from North Carolina, where he studied journalism at UNC Chapel Hill. After interning at Kiva in 2012, he joined the staff full time in 2013 to serve as the Community Marketing Coordinator, Kiva's liaison with the 25,000 lending team communities. In his spare time, Brandon enjoys medium-format photography, biking around the bay, and keeping in touch with friends and family on the east coast.

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