If you have a teen that will soon be making more of their own financial decisions and may even start living on their own in the near future, one of the best things that you can teach them while they are still young is how to handle and use debt in their life. So many young people get tempted into going into debt as soon as credit is extended to them. And sadly, this can have big impacts on the rest of their life. But if you can teach them the proper way to manage these kinds of things, you could save them from a lifetime of hardship.
To help you see how this can be done, here are three things to teach your teen about debt.
The Difference Between Good And Bad Debt
While some debt is going to be harmful to have, other debts are totally necessary. The trick here for your teen is being able to know the difference.
If your teen is taking on debt as a form of investment, then that will usually be considered good debt. This happens when they buy a home or invest in their education with the ability to make more money in the future. Bad debt is generally debt that won’t be giving them any benefit in return. This can include things like credit card debt or taking out other forms of loans. So before they start using credit, help them stop and think about whether the debt will ultimately be good or bad for them.
Debt Can Vastly Impact Your Life
When someone goes into debt, it can impact all areas of their life. Not only are they now needing to seek out debt relief in some way, but they may also have a harder time finding a place to live, think twice about things like marriage or starting a family, or have to pay more for things like a car. So when your teen is considering going into debt for something, help them understand the possible ramifications of this.
Talk About The True Cost Of Something When Borrowing Money
One of the biggest draws for people to buy something on credit and go into debt is the false assumption that you can have it now and pay for it later, which will be saving them money. But in reality, with interest rates, anything that you buy on credit and go into debt for is going to be more expensive than if you’d just paid for it entirely.
To help your teen understand this, talk to them about interest and how paying interest works. Using the example of a home loan and how much you really end up paying before the home is paid off can be a great case study for interest for young people.
If you want your teen to have a healthy relationship with money and debt, consider using the tips mentioned above to help you teach this to them.
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