How To Educate Our Children About Debt
This applicant is really not interested in a loan. Instead he is looking for some information about how to educate our children about debt.
We learn all sorts of things in school, but for some reason personal financial issues are just not taught in our schools today.
Many people learn the difficulty of managing their finances and specifically debt after it is too late. They get themselves into trouble by spending more than they make and end up paying thousands of dollars in interest charges on the subsequent debt they have accumulated.
While they have this debt they are not saving for emergencies, saving for a down payment on a home and not saving for retirement. All of this can have catastrophic implications on their quality of life as they make their way through life.
Why we are afraid to discuss money with our children?
One of the reasons we are afraid to discuss money issues and specifically debt is that we ourselves have made a lot of mistakes and really do not know or understand what we did wrong. In addition, consumers consider personal financial issues an intensely private thing. No one wants to admit they made mistakes or are in debt to friends or even their kids. They do not want other people to know how much they have in assets and certainly not how much money they have in debt.
However, managing debt is one of life’s experiences that we all must deal with and you really can help your kids by providing them some training and guidance when it comes to saving and debt. The following are 5 areas that you can discuss with your kids and grand kids regarding how to educate kids about debt.
Start Young – and teach them to manage their allowance. Give the kids an allowance based on chores they must do around the home. Have them set some goals regarding items they may wish to purchase, teach them about saving and by having them spend some of their money they will learn how expensive things are.
Teach Through Allowance – As mentioned the allowance is one of the best ways to teach children about saving, about spending and about working towards a goal. They also learn to appreciate things more if they worked for it and they purchased it with their own money.
Set up a Budget – Spending money is very easy, saving it for something they want to purchase can be difficult when there are many temptations. Teaching them about budgets is one way to help them enjoy some of their money when they get paid while saving for something they want to purchase in the future. A budget will show them how long it will take them to achieve their goals.
Saving & Compounding – of money is a phenomenon that everyone should learn, both for saving money as well as debt. Saving $50 a month for 30 years at an average interest rate of 5% with the interest reinvested would give someone over $106,000 assuming compounding of interest every 6 months. Total cash paid is only $18,000! All the rest is interest income and compounding of the interest or interest income on interest.
Cost of Debt – is much the same especially if you do not pay your monthly payment or just pay the minimum amount on a credit card bill for example. The cost of a $1000 loan at 5% for a year is $50. Standard credit card rates are 19% which means you would pay $190 for the same $1000 if it is carried as a balance on your account. Store credit cards are even higher at around 29% or $290. This does not take into account compounding which can push all of these amounts much higher.
Avoid debt as much as possible. Pay the balance on your credit cards by the statement date every month. When negotiating loans and mortgages review the interest calculation date and watch for that compounding impact that can drive interest costs much higher than our examples.
DEFAULT LOAN APPLICATION FOR BORROWER’S INFORMATION
Home/Mortgage Loan Amount :: $50,000
Home Loan Application and Processing Speed (when do you need the funds):: as soon as possible
Do you currently have a mortgage? ::no, I rent
Bank Name and Branch :: Community Business Bank, Riverpoint Ct
What City/Town, State and County do you live in? :: Sacramento, California
Zip :: 95605
What is your employment field? :: Semi – Retired
Employment Position :: Work part time at a local retail store
When are you paid? (monthly/weekly/biweekly):: Bi Weekly
Your credit rating to be – excellent, fair, or bad? :: excellent
How did you find us? :: Looking for information online about how to educate our children about debt
How are you paid? (direct deposit/paper check):: direct deposit
Gross Amount Per Paycheck :: $3848
Do you agree to have this information published online, without your PRIVATE information of course? :: yes, I think the answers to my questions will be helpful to many people
Extra information here please (some detail):: I really do not need a loan. I am retired and have sufficient income to live comfortably as well as do all of the things that my wife and I love to do. What I really want to know is how to educate our children about debt. While I tried to educate my own children about debt, I am not sure I did a very good job. They seem to be spending more money than they earn and I fear that they will end up needing some form of bankruptcy protection action as well as having to pay a large amount of interest on this debt.
They do not even own their own house and they really have no chance of ever purchasing one given their credit rating. Somehow I have failed in my efforts to educate them about debt.
Note to Lender :: I am not sure that I can help them very much now other than give them money to get them out of debt which is something I really do not want to do. I am most interested in what I can do to educate my grandchildren about debt and counter some of the things they are learning from their parents.
Do you have any suggestions about what we can do as grand parents as well as what parents can do to educate their own kids about debt?