Updated: September 8, 2020
Many people struggle with getting out of debt, specially credit card debts. One reason for this is because I believe, there is very little emphasis on the importance of proper personal finance in our educational system.
While we are all advised that saving money is good, we are however not really taught in school how to track our expenses, create a personal budget system, and many other smart money habits.
Thus, learning financial literacy becomes a personal initiative and unfortunately, not many give it the importance and priority it needs.
Eliza, our guest blogger for today, shares with us her take on this subject. She emphasizes that when it comes to personal finance, learning still starts at home.
Let’s now read what she has to say and consider her advice on how you can help your child stay away from a financial debt disaster.
It’s our job as parents to set our kids up for success in life. While you may not be able to give your child a big trust fund, you can give them something just as good – financial lessons that will keep them out of debt.
You see, if your kids can avoid being deep in debt the first few years of out of college, they can start socking away money that will make them millionaires by the time they retire. Here are some valuable lessons to teach your kids to keep them out of debt.
Save part of everything you earn.
Saving money is one of the most solid pieces of financial advice you can give. We save money so we don’t have to go into debt when there’s an emergency.
Or, we save up for an expensive purchase instead of putting it on a credit card. If your kids begin saving for retirement in their early 20s, they can accumulate a larger savings account with less money each month than if they wait.
You have to pay back what you borrow.
Paying back debt wouldn’t be so hard if it didn’t mean making serious sacrifices. The more money we put toward debt, the less money we have for everything else, like saving and normal expenses. Some people end up creating debt on top of debt because they don’t put off purchases until they can afford them.
There’s good debt and there’s bad debt.
Not all debt is considered bad debt. If a debt helps you create wealth, it’s typically called good debt.
For example, a student loan can be good debt because it helps you get an education that leads to better-paying jobs. All debt can become bad debt if you take on too much. Or, if you use “good” debt toward a degree that doesn’t typically pay well.
Learn more: On Good Debt, Bad Debt and Ugly Debt
Your money may not stretch as far as you think.
People often overextend themselves with debt thinking they can afford to pay it back later. When you’re young, the sky is the limit. You expect to graduate from college and get a great job with a salary at the top of the pay scale.
But, that’s not always the case. A job after graduation isn’t guaranteed, neither is any particular salary. You can be sure the lenders want their monthly payments whether you’re employed or not.
Use cash if a debit card makes you lose control.
Managing money electronically isn’t easy. When we wrote more checks, we used a checkbook register to keep a record of our account balances. But, in the rise of debit cards and online banking, balancing a checkbook is ancient accounting.
It’s easy to lose track of your balance when you’re using a debit card because you have to do a lot of math in your head. Let your kids know that cash is still accepted for everyday transactions and it’s always an option if debit cards cause them to overspend.
Help your child learn more about financial management by suggesting some books and websites on the subject. Best of all, make sure you’re in good financial shape yourself.
This post was written by Eliza Collins.
What to read next: All About Credit Cards
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