Parents! I can’t emphasize enough about how important it is to teach your kids about money. Especially, by the age of 14 and they’re teenagers becoming young adults.
These days it seems like there’s little to no financial education in the traditional school system. This is setting up young adults who are graduating high school for financial failure!
One such failure is getting into a very, very, very deep student loan and credit card debt hole.
I’m seeing young adults going to college for the hope of pursuing a prosperous career path. But, after they graduate they’re straddled with high student loan debt and a degree that might not bring the earning potential that was promised. Credit card debt can also be an issue if the student was short on cash and used it to pay for additional bills or living expenses etc.
One of the worse student loan nightmare examples I’ve been reading about can be found in an article recently published by CBS News called Millennials struggle under the burden of student loan debt: “I had a panic attack”
The Credit Problem When Teens Turn 18 Years Old
When a teenager turns 18 years of age they can start using credit and sign their name to credit cards, personal loans, auto loans, and student loans. Which is perfectly fine, but it’s a great financial responsibility to borrow money. Financial awareness and knowledge are mandatory to avoid trouble later on!
Did You Know? Student loan debt is the hardest type of debt to settle on or get dismissed if you have a financial hardship. The same is not true for credit cards, personal loans, or car loans. Those are pretty easy to get rid of because they can be discharged in bankruptcy court.
OF COURSE, Bankruptcy should always be the last option as it will put someone into total financial ruin. But, the upside is you’ll have a clean slate to start from! It’s also sometimes a better option than debt settlement, which can also have its fair share of issues with the IRS. Recently, I wrote an article about the tax nightmares of settling debt, check it out.
THE BIG TAKEAWAY – BEFORE ANY YOUNG ADULT OR PARENT SIGNS THERE NAME FOR A STUDENT LOAN, KEEP IN MIND THAT IT MIGHT FOLLOW YOU TO THE GRAVE!!
I might sound a bit over dramatic here but I don’t think I am by any means. Just read this article from the AARP about how student loan debt could affect someone in retirement years, Student Loan Debt Can Sink Your Retirement Plan.
The solution here is to build up a solid financial education at a young age, then really, really, think about your life and how the cost of college will affect it in later years.
Some Ways To Start Building Financial Awareness For Your Kids
- By the age of 14, have them open a Checking/Savings account and co-sign for them. Then deposit money into the account with an allowance or money they earn doing odd jobs.
- Show them how to use online banking and the basics of how a check register works.
- Let your kids buy things for themselves with a check debit card. Then encourage them to draw cash from the ATM and encourage them to use CASH instead of the debit card. This will force them to see exactly how digital and physical money work.
- Have them take a consumer math class in High School. I took one my senior year and it paid off big time. Your kids will learn about basic cents, dollars, percentages, tax rates, fractions, adding, dividing, and reading profit/loss statements.
- Encourage your kids to go to garage sales and buy people’s junk and collectibles for a deal (a low price.) Then flip them on the Facebook Marketplace or eBay for a profit. You can do this together!
- Encourage them to seek employment or run a side hustle. When I was a teenager, my first side hustle was delivering newspapers. Gary Vaynerchuk recently started a new YouTube channel called Lil Vee, it teaches kids in school about the basic economics of a business. Check it out.
- Most importantly, encourage your young ones to ask you questions if they’re insecure about how money works.
Lastly, Learn About The Rule Of 72
Everyone should learn about the Rule Of 72 as early as possible in life. Knowing the power of how to calculate how long an investment will take to double based on its interest rate of return is a huge advantage.
Did you know? Starting your investment career at the age of 20 vs. 30 can allow you more time to possibly compound your investment from 500k to 1 Million dollars by the time you hit retirement age. You can run some numbers with this compound interest calculator, to see some examples. This is exactly why learning it at the youngest age possible is huge!
At first, the concept will take some time to think through. But it will pay off in a big way to be aware of it, especially when compounding interest kicks in to grow the money even more.
I hope you enjoyed this article! Give me your comments below and let me know what you think about the whole student loan and overall debt problem for young adults. I feel like the only real solution is to teach kids as much as possible about money and personal finance. Knowledge is power!