5 tips for talking to teens about debt
The earlier you have the conversation, the better.
When it comes to cash, the earlier you can teach young people about money management, the better. Debt is an important part of adult life that offers a way to fund the purchase of a home, the development of a business and some of life’s biggest dreams. It can also be tricky to manage for the inexperienced and is something that we’re signing up for earlier and earlier in life. That’s why it’s so important to take the time to talk to teens about debt.
- Don’t shy away from it
69% of parents are reluctant to talk to their children about money, according to a 2017 survey by T. Rowe Price. It’s not the most interesting of conversations and it’s not inherently fun. However, making sure that teenagers understand how debt operates is crucial – particularly as this is information that they are unlikely to get from another source. So, although you might not relish spending this precious time discussing interest rates, penalties and repayment schedules it’s essential information for every teenager to have.
- Assume that they already have some awareness
Given the wide variety of advertising that lenders use to reach new customers – from TV ads, to social media advertising – it’s highly likely that teenagers have already been exposed to the idea of borrowing. What is key is to break through the language they may have already heard and provide a more realistic interpretation of what’s on offer instead. So, for example, if they have already seen that they could buy their first car for just $x a month – “interest free for two years” – you need to make sure that they understand the full consequences of a deal like that for their future finances. Ask them for examples they’ve already come across and then use those to explain what it really means to borrow money in a context they understand.
- Strike a balance between warning and informing
Unless the teenager you’re speaking to has access to a trust fund and benefits from great parental wealth it’s highly likely that they will need to borrow at some point. So, avoid delivering terrifying warnings that will prevent them from ever using debt sensibly. Having said that it is important to ensure teenagers understand what can happen if debts aren’t repaid – and how important it is to borrow affordably. You don’t want them to use guarantor loans with parents guaranteeing repayments and doorstep loans or other alternative loans. Strike a balance between explaining the benefits of debt and illustrating how important it is to avoid negative consequences.
- Try to break through the idea of ‘free money’
The most common theme for those who get into trouble with debt is viewing loans and credit cards as ‘free money.’ So, when you’re talking to teens about debt make this a priority. It may help to set up an experiment – loan the teenager the cash for something they really want and then get them to repay with interest. This will really drive home the lesson that what is borrowed must be repaid and that it costs to do that.
- Make sure they feel able to ask for help
Debt problems can spiral quickly so it’s key to make sure that you get across the message of asking for help as soon as an issue arises. Encourage them to be proactive and positive, to accept that it’s not unusual to run into problems with debt and there is always a solution. Avoid teaching shameful feelings associated with debt or you’ll remove the teenager’s ability to act to solve the situation in future.