Debt

Tips on How to Teach Children to Avoid Debt

Being in debt seems to be a part of everyday life for many people and it can bring about a lot of stress. Most parents would not like to see their children in a situation here they had a lot of bad debt and were struggling financially. Therefore it is worth them working with their children to make sure that they have a good understanding of debt and how it works so that they can make good decisions when they are considering borrowing money.

It is wise to start at a young age if you can. Make sure that they know how much things cost, how to save money and are familiar with banks and banking and how it all works. Opening them a bank account is a great way to introduce them to the idea of saving money and using banks. Having a money box at home so that they can put in any money that they are given or find is also really useful, but make sure they pay it into their account regularly as having money sitting around in a box is not earning any interest!

As they get older teach them about comparing prices when you go shopping. Show them things in the supermarket such as the different apples or carrots and discuss why they are different prices, how to work out which is the cheapest and also which is the best value for money. Explain to them which you buy and why. You will probably buy some items that are not the cheapest because you like the taste better so explain that to them. Also discuss why you should compare some products by how much 100g costs rather than a packet as the packet size differs but when comparing things like crisps where a packet size is a serving, you will only eat one at a time so the size of the packet is less relevant than the cost per packet.

It can also be wise to talk to them about household bills. Explain about all of the things that you have to pay for such as rent / mortgage, utilities, insurance and food. Show them how you budget to make sure that you have enough money to pay for all of these things and what you do with any money that you have left over. Discuss with them how you are saving for retirement and what reserves you have in case of financial emergencies.

It is a good idea to also tell them about debt. Talk to them about good debt such as mortgages and student loans compares with bad debt such as short term loans and overdrafts. Explain when debt can be useful and how you should not be frightened of it but how it can also get out of control and how spending too much and borrowing without too much thought can lead to all sorts of problems.

It is a good idea to have regular discussions with them about money and build on each as they get older to give them information that is relevant to them. You may find that as teenagers they may be less receptive as at that age they tend to feel that they want to come up with their own ideas rather than listen to parents. Therefore it can be good to try to get in before they reach this age and they may have already thought about it and formed their own sensible ideas about finance and debt before they get the opportunity to borrow money.

Once they leave home they are more likely to get into debt and this can be difficult for parents as they have less influence on things. However, try to encourage them to be open about debt with you and if they do need help listen and offer advise without being critical. It can be hard especially if you have worked hard trying to get them to avoid debt and then finding that they have got into difficulty. However, it may be a good lesson for them and some help and guidance could mean that they will avoid mistakes in the future. Do make sure that you are not tempted to give them the money they need though, either end it to them or help them to budget their own money to find a way of paying it off as if you bail them out they will expect it every time.

Student Loans

Should Parents be Scared of Student Loans?

As parents we can get worried about everything that our children experience and debt worries can be a really big concern. This means that when faced with the idea that to do a degree, your child will need to get a student loan, many parents can get very concerned. It is natural to worry that your child may be in debt for thirty years and how that will affect them, but the reality of a student loan may not be as scary as it seems.

Firstly, a UK student loan is not really a loan at all. It is set up in a completely different way. Repayments are means tested, so only once a graduate is earning above a certain level will they have to make repayments. This means that if income is low, they will not have to worry about the loan at all. They will also not necessarily have to pay it all off because any remaining money owed after thirty years is written off. The money is also automatically deducted from the tax code of those that are employed and it does not appear on their credit record and is not looked at as a factor when they are applying for other loans.

Therefore parents should not be overly worried about the student loans. The repayment system is set up to make sure that the graduate only pays back what they can afford, when they can afford it and so the problems of normal debt repayments are not relevant. Over three quarters of students currently do not repay their entire loan and so any increases in interest rates or fees will probably not be relevant unless the full loan is repaid as those extras will not be repaid anyway.
Another concern may be that once they take on a debt, in a student loan, they may feel that it is then fine to take on other debt. However, parents can take time to explain to them why other debts are very different and how this is not a good idea. Students will also be very limited in what they can borrow and even as graduates it will take time for their credit rating to build up to a level where they can borrow significant amounts of money anyway.

Some parents may worry that having student loan repayments taken from their tax code, will mean that graduates will have less disposable income and that could affect their chances of getting a mortgage. This could be a genuine concern but the repayments on the student loans will not be significantly high. Even those on the very highest salary will not be paying huge amounts each month and so it is unlikely to make much of a difference.

If parents are that concerned, they could consider paying or the course or repaying the loan themselves. However, this may not be the best course of action. Ad many students never repay their course fees in full let alone the interest charged on them, if they are paid for outright then more money than necessary may be being paid out. Some people may feel that morally they should pay it all back and feel very comfortable with doing so while others may feel that they need only pay back what they have to. There is no right or wrong here and obviously unless you can afford it, you may only be able to pay back a smaller amount anyway. Parents could consider giving the children the money for their monthly repayments when they need to start making them.
This is very much a personal choice but could be something that concerned parents could do if they feel that their children are suffering as a result of having to find the money themselves. Some would argue that if the children are earning enough they should pay it and they need to get used to paying back their own debts rather than being helped out. But others may feel that they want to help and nurture their children and this is one way that they will do it. Again it is a very personal thing and may very much depend on your circumstances as well.

So parents really should not worry too much about student loans. Many may have gone to university for free and feel worried that their children will not get the same privilege. However, it is something which children have grown up knowing will happen and as long as they understand the consequences of borrowing money, both the positives of having a degree and the negatives of borrowing then they will have the information that they need to make the right decision.

Car Loans

How to Buy Your Next Car Without the need for Borrowing

Buying a car can be a big expense and many of us will borrow money quick in order to be able to afford one. This means that we are in debt and it can take a long time to repay as well as being more expensive than if we paid outright. The debt repayments will mean that we have less money to spend on other things while it is being repaid and that could mean that it will be a cause of stress and worry. Therefore there are lots of reasons why you will be better off if you do not borrow money for your next car and so below are some tips on how to afford to do this.

As soon as you can it can be wise to take a look at your finances and plan for your next car. You know that you will need one as cars do not last forever and so you need to think about how you will afford it. If you are careful you will not need to get a loan.

In order to have enough money you will need to save money up. Put some money aside each month or week so that you will have enough to pay for a car when you need one. Obviously the longer you have to save the better, but it is important to consider your debt as well. While you owe money, perhaps for your current car, on a credit card or whatever, you will be paying out interest on those loans and this is expensive. If you can pay those back, then you will have a lot of free money that you can save up towards a car. As debt is expensive getting rid of it as soon as possible is really important and you may want to prioritise this over saving up for a car to start with. It will depend on what sort of debt it is and how much it is costing you.

Saving up for anything can be difficult particularly if you are not sure when you will need to purchase it. However, if you can set up a savings account and a direct debit payment, you should be able to have money go out of your account regularly to start saving up. This may be a different way around to how most people save as many people will wait until the end of the month and see whether there is any money left to save and transfer that. However, by taking it out at the start of the month, you will have to budget in order to manage without that money and that will mean that you should end up saving more.

Knowing exactly how much to put aside ca be difficult. However, you may be able to guess how long it might be until you will need a new car and calculate how much you will need to save each month to pay for one that is equivalent or better than the one that you have. The amount could be rather scary, but even if you save something towards it, you will be able to borrow less and that will be a big help. You may be able to save a lot more than you think if you find ways to spend less and earn more.

You may need to think about how you can cut your spending so that you can afford to save money. Many people already do a lot of things to reduce their spending, but it is always worth thinking about it even if you have done so in the past. Compare prices on your insurance, banking, utilities and things like that and see whether you can switch to a cheaper provider and save money. You should get into the habit of comparing prices on everything that you buy. You may be able to find the items cheaper in other places and save money. It is also wise to think about whether you really need the things that you are buying or if you are just buying them out of habit or on a whim. This can be difficult but you need to make sure that you do not feel that spending less is a punishment. Think of it as a treat so that you will more easily be able to buy a car without the stress of having to get a loan.

Having more income could also help you to save more. There are ways that you may be able to increase your income without too much effort. It could be worth asking or a pay rise, for example. You may be willing to work a few extra hours, get an additional job or do some freelance work to earn more. Some people enjoy setting up their own business and it could be something that will earn some extra money in their spare time. You may also have items that you no longer need that you can sell to make some extra money.