Teenage Debt And How To Avoid It

We tend to think of debt as a problem that only affects older people, however, increasing numbers of teenagers are getting into debt difficulties, a trend that is worrying governments and financial organizations. The problem of teenage debt goes beyond the short term because bad debt habits picked up early in life can be hard to overcome, and the indebted teenager of today is likely to be tomorrow’s financially challenged adult.

When it comes to educating teenagers about financial matters, the importance of teaching them about how to manage money is hard to overestimate. Teenagers are particularly at risk of serious debt as they often lack a full understanding of how debt and credit works, and this vulnerability is preyed upon by companies offering credit cards and mobile phone payment schemes that are not always suitable for their teenage customers.

Parents are sometimes ill-prepared to teach their teenage children the importance of debt management and all too often expect them to go from looking after a childhood savings account to managing their own credit card. It is vital to teach them about the whole range of debt issues from what constitutes good and bad debt to debt consolidation.

As an adult, your credit score will impact your financial decisions and determine your opportunities, but that score is built up from your first financial transactions. Late payment of bills or avoiding payment altogether can have a negative impact on a teenager’s credit score that they will have to carry with them as adults. It is therefore vital to teach them how critical a credit score is, and what factors can affect this. Here are some more tips on how to teach your teenager to adopt good debt habits.

 

Delay their uptake of credit cards

Teenagers often gain access to credit cards before they are financially mature enough to handle them. It is a good idea to help them to learn to manage cash through their standard checking account initially. If they can show responsibility at that stage, then you can let them add a debit card and eventually a credit card.

 

Set strict limits

Attempting to live beyond your means is the cause of some debt problems, so it is important for your teenager to learn to manage their money within limits. This can be done by giving them alternatives to credit, such as prepaid mobile phonecards.

 

Encourage good financial habits

Avoiding debt problems throughout life is a lot easier if your teenager has learned good money management. It is never too early to teach them about the importance of budgeting, making their payments on time, where possible paying more than the minimum, and working towards saving goals.

Our financial habits are learned, they are not innate, and many teenagers who later develop debt problems failed to learn the right way to deal with money when they were young. By instilling good debt management in your children during their teenage years, you will be giving them the best possible chance of staying debt free and financially secure for the rest of their lives.

 

 

John Andrew is the Founder and Publisher of Teens Mean Business & has been writing about small businesses since 2005.

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