Life Skills – Understanding Debt

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During the discussions about our #LifeSkills article,  one of the members of our Facebook Group wrote about children, debt and money management. Understanding debt, not demonising it, is the way to ensure that kids stay safe, Gwen wrote. With her permission, we are sharing her thoughts here.

On face value,  I agree that we should be teaching them handle money, and how to save not to get into debt,  we have to be aware of today’s realities.

Debt isn’t Always Bad

Don’t get into debt … unless you’re buying a house, going to University, buying a car so you can get to work, or starting a business, or maybe doing the house up to sell on. Then it’s ok.

Even signing a mobile phone contract is in essence a debt, as you are paying off the amount outstanding on the handset you’re tied into it (though I’ve seen some providers now splitting the phone cost and data costs to make it clearer – but it’s a very subtle way of getting a debt).

So they’re already getting mixed messages. We have ‘acceptable debt’ and ‘not so acceptable debt’. At that most basic level, we need to teach them about debt

Essential Debt

For many families, credit is the only way to replace essential items. Popping into the laundrette to wash your clothes until you’ve saved for a new washing machine is no longer a simple, or affordable option. Yes, I suppose they could hand wash, but some of us never quite mastered it and it’s a very time consuming task.

Saving is often nigh on impossible for many families today. It’s only in the last 18 months or so I’ve started being able to save something each month, but even now there are some months (such as this one with back to school), where I’ve not been able to.

Sometimes there simply isn’t enough money to pay for everything; not poor money management, just high costs of living, delayed benefits, sanctions, illness, whatever, and the credit card needs to come out.

Sensible Credit Usage

Sometimes using credit can be a savvy move. I have Very account, because they have a Take 3 option, of spreading the cost of purchases over three months, without incurring interest.  For example, if I were buying a new kettle, I would weigh up getting a cheap one, that I could afford to buy immediately, but may not last more than a year or so before needing replacing. Or I could buy a better quality kettle, that will last much longer and in the long run save money, using the Take 3 option pay over three months.

For someone on a really tight budget, it might be that choosing to pay back over six months (so only paying interest for three months) would still be better value when looked at long term.

It’s complicated, and needs some real planning and research, and a basic understanding of how credit works. but it can mean that you’re not having to replace large expensive items every couple of years, and have peace of mind.

Credit Card Protection

Many people prefer to pay for purchases (especially online) with a credit card rather than debit card due to slightly better protection if you need a refund. It still needs to be paid back at the end of the month, but I tend to use my credit card to make larger purchases online for this reason.

We need to instill in our children money management skills, and the pitfalls of ‘buy now pay later’ – but  it’s important that they understand how credit works, how to make credit work for them. Due to a variety of circumstances, credit has become a part of life today. If they find themselves in a position of ‘needing’ the credit for something, and they’re armed with knowledge of how it works, and what is a good deal, then they’re less likely to get ripped off.

 

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