Category: Debt

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.