Helping Teens Understand the Difference Between Good and Bad DebtAug 19, 2015
How well does your teen understand the concept of debt? Do they know the difference between good debt and bad debt? More importantly, do they know how to manage the former and avoid the latter? Increasingly, it seems that although teens may be aware of the latest fashion trends and chart-topping songs, many are not too familiar with the idea of debt management. An understanding of debt, however, is really key to developing healthy financial habits that can protect your teen from future debt problems and a potential visit with a Trustee in Bankruptcy.
Although Ontario schools have a mandate to include financial literacy within several areas in the Ontario curriculum, it may not be enough to help teens understand debt. Although schools discuss concepts like consumer awareness, personal finances, budgeting and money management, there often tends to be more of a focus on the calculations involved rather than providing hands-on experience and helpful tips. Wouldn’t it be great if, in addition to teaching teens how to calculate the interest on a loan, they also had opportunities to learn how to make a home-cooked meal in order to save money and stay on budget? Bringing back mandatory home c would provide such opportunities and allow students to develop important life skills that will help them get ahead.
Until mandatory home ec makes a return, you can take the opportunity to help fill this knowledge gap for your teen. First and foremost, acting as a good financial role model and demonstrating good financial habits such as following and sticking to a budget will go a long way in helping your teen develop their own healthy financial habits. Discussing what happens when debt gets out of control is also an important way to help your teen understand the consequences of not managing debt effectively. You may also wish to discuss debt reduction strategies such as debt consolidation, filing a consumer proposal or, as a last resort, filing for bankruptcy through a Trustee in Bankruptcy so that your teen is aware of the processes and steps needed in order to manage debt that has spiraled out of control – a topic not typically discussed in schools.
Discussing the difference between good and bad debt is also an important way to ensure that teens have a well-rounded understanding of debt management. If your teen is planning on attending a post-secondary institution, they may be considering student loans in order to finance their studies. You can use this real world example as an opportunity to discuss how debt can be a positive thing, such as student loan debt. You can also discuss with them the importance of creating a budget to manage their spending while they are away at school in order to avoid spending more of their loan money than necessary and help to keep them financially on track.
Having an in-depth knowledge of financial management, including debt management, is important for teens in order to ensure their future financial stability. Whether your teen learns about personal finances at school, providing extra, real world lessons and examples is an important way to ensure they avoid debt problems, and a potential visit to a Trustee in Bankruptcy, in the future.
How do you teach your teen about money and debt? Share your thoughts with BDO Barrie using the hashtag #LetsTalkDebt