Talking to Young People About Managing Debt

July 14, 2020

When young people go to school, they are given information on practically every subject under the sun, though in most countries, debt and how to manage it is not something that is regularly discussed. This means it is down to parents and carers to provide advice and guidance on how to control finances. This is not an easy discussion to have, it can be complex, difficult, and even stressful, especially if you have debt yourself. In this article, Asteria discusses how to talk to young people managing debt.

Learn How Debt Works Yourself

There are a surprising number of adults who still are not really sure about how debt actually works. Many of these people struggle with their own personal finances and have a habit of burying their heads in the sand when it comes to coping with money. Before you can offer any valuable advice to your own kids, it makes sense to try and get a handle on how debt works yourself. Most personal loan and salary loan providers in the Philippines will have blog sections that are full of information about how things like credit cards and loans actually work. You can also find information on things like APR (Annual Percentage Rate) and interest rates by searching for independent financial advice sites. To avoid confusion or giving out incorrect information, always spend some time learning about how debt works before you try to offer any advice to the young people in your life.

Do not Scare Them with Horror Stories

Debt is not necessarily a bad thing and in the current climate, borrowing is an essential part of life for everybody other than people with a great deal of disposable income. Many parents, especially those who are already in debt themselves, will try to illustrate how serious debt can be by telling their children horror stories about people who have found themselves in financial trouble. Though responsible borrowing is definitely important, discouraging young people from using personal loans, credit cards and other forms of finance all together is impractical and unrealistic. Instead, try to explain the importance of balance, prioritising purchases and understanding how to get the best deal from loan providers. As is the case with most things, when young people are repeatedly told not to do something, the chances are the combination of curiosity and rebelliousness will encourage them to do it anyway. Taking a measured approach and being realistic is far more effective than brow beating or nagging.

Talk About Credit Ratings

Now more than ever, credit ratings matter. We give out so much data to credit checking agencies and businesses that it is impossible to ignore this as a factor when it comes to financial security. It is important to explain this to young people as soon as you think they are old enough to understand. Students and younger people who are moving away from home for the first time will be particularly thankful for this advice as it will help them to understand how to tackle some of life’s little emergencies and how to manage large purchases responsibly. Explaining the importance of not overusing credit should be your starting point as this is the primary cause of poor credit scores. When people borrow way more than they can possibly afford to pay back, they are understandably marked as a high-risk customer. It is also worth mentioning some of the less obvious factors, such as how many times you have moved to a new house, your age and also any other connections you might have with other people. Though nobody expects you to be an expert on the ins and outs of credit scoring, providing your loved ones with a basic overview is always a good idea.

Explain the importance of legitimate lenders

Illegal lenders are often associated with criminal gangs and the underworld. Neither of these things are something that a parent or carer wants to expose their children or family to. When discussing personal finance with your loved ones, explain the importance of avoiding illegal lenders and the benefits of dealing with legitimate, registered companies. In the Philippines, financial laws are strictly enforced and those who are found guilty of breaking them can find themselves in serious trouble. In the most serious cases, a prison sentence can be imposed on everybody involved, so always discourage dealing with illegitimate lenders when talking to your family about finance.

Teach Budgeting Skills

Budgeting takes time and experience to learn properly but it can be one of the most important life skills that a person can have. Explaining the benefits of budgeting can be challenging, especially when talking to younger children or those with no experience of handling money. A good way to introduce this concept is to provide young people with a weekly or monthly allowance that they are expected to manage themselves. Practicing how to make your money go further from a young age helps in later life and can be good steppingstone to responsible borrowing. Though most people will end up spending more then they mean to initially, learning these lessons early on in life is generally far better than finding them out as an adult.

Summary

Personal finance is not a subject many parents to talk to their children about but in today’s world it makes a lot of sense to do so. Rather than waiting until they are old enough to apply for their own credit cards or personal loans, it can be a good idea to begin explaining the basics of money management as early as possible. Though they may not take everything in and there are bound to be one or two mistakes, talking to your loved ones about money is one of the best ways to help them develop into responsible adults.