New cars, fancy vacations, the latest electronics—there’s no question that Americans, even in the aftermath of the Great Recession, love to spend money. More and more people in today’s world need to ask themselves, what is finance?..And what should I do to make sure I have my finances under control. All too frequently, many purchases aren’t paid for outright. Instead, people hand over a credit card or get a loan. In the second quarter of 2012, U.S. consumers had a total of more than $2.7 trillion in outstanding consumer debt, such as credit card debt and car loans—and that doesn’t include mortgage debt.[1]
Most people understand that getting trapped under a mountain of debt isn’t smart. But that doesn’t stop many—especially young people who are out on their own for the first time—from making poor financial choices that can haunt them for decades. In these economic and business times, it is now more important than ever to teach our children the important things about money and wealth management.
So, as a parent, what can you do to help your kids avoid debt and make sensible financial choices? One step is modeling good financial behavior yourself, since if you spend carelessly and are always struggling to pay off your credit card bill at the end of the month, your kids may end up mimicking those actions. You can also have a frank conversation about how to use credit wisely and recognize if they have a problem with debt.
Signs Someone Has a Problem with Debt
How can you tell if your child has a problem with debt? Debtors Anonymous has identified 12 signs that a person’s debt may be out of control:
- Not have a good understanding of your current financial situation, including loan balances, interest rates or monthly expenses.
- Habitually borrowing items or small amounts of money from friends and family and failing to return the item or pay the person back.
- Inability to save for expected future expenses, such as taxes or retirement.
- Shopping compulsively, including purchasing but not using items, buying things just because they’re on sale, and or making lots of impulse purchases.
- Trouble meeting basic personal and financial obligations.
- A feeling of being special or grown up when paying for things with credit rather than cash.
- Living in persistent financial chaos, including suffering from constant financial crises, bouncing checks and using one credit card to pay off the balance on another.
- A tendency to “live on the edge” financially, such as not having health insurance or car insurance or living paycheck to paycheck.
- Being embarrassed to discuss money.
- Either overworking or underearning, such as working extra hours to pay off creditors or taking jobs below your current skill level.
- Having to sacrifice basic needs in order to pay off creditors.
- Having a sense that someone will step in to handle the situation so that serious financial trouble can be avoided.
If you recognize these signs a loved one, encourage them to get help. If you suspect that your child is having problems managing money, talk to them about your concerns. Try to avoid being too judgmental. At the same time, resist any urge you have to bail them out, which won’t force them to change their habits and could put your own financial future at risk.
If a person isn’t careful about how they use credit, it can quickly spiral out of control, making it difficult, if not impossible for them to achieve their long-term goals. Talking to your children today about the hazards to debt could be one of the greatest financial gifts you ever give them. So first ask yourself what is finance, learn to understand it, and then master it.
Have questions about financial planning? We’ll be happy to sit down and talk with you. You can also stay informed on Comprehensive Financial Planning and ElderCare Advocates by subscribing to Chris Cooper’s email newsletter today: http://www.chriscooper.com/
[1] http://www.philadelphiafed.org/consumer-credit-and-payments/statistics/