During the COVID-19 pandemic, it is important that Americans stay indoors for as much time as possible, with exceptions such as going to the grocery store or going to the dentist for an annual checkup, for example. The good news is that staying at home with your children is a great opportunity to give them a debt education, so they can learn how to responsibly save, earn, and spend money when they are older. If your children are adolescents, then they might be already working and earning money, or they soon will be in the next few years. So, a proper debt education is vital so they can learn good financial habits, and you can be a fine teacher for them. It is often argued that the public school system falls far short in terms of debt education and teaching financial literacy, but whether or not that’s the case, this quarantine is a ripe chance for your children to get debt education.
Americans and Debt
It is safe to say that when your children are older and living on their own, they are definitely going to experience debt in some shape or form. Ideally, after getting a debt education from you, your young ones will have debt for the right reasons, not the wrong reasons. Speaking generally, it is nearly impossible for Americans to avoid having debt of some kind, though having a debt education can keep them safe from problems such as eviction or extra fees or repossession. It may be noted that Millennials, young adults born from 1982-1995, are often in debt, and around 81.5% of them have debt for one reason or another. When the members of Generation Z are older (born 1996-2010), they might have similar rates of debt, too, such as student loan debts or auto debts. And it’s not just American youth; credit card debt and medical debt are huge, as is auto debt, and Americans as a whole owe over $1 trillion in medical debt. Meanwhile, medical debt is the number one type of consumer debt in the entire United States.
So, should you be concerned about this? Should your children? In general, no. These debts exist for a reason, and major expenses such as buying a house or buying a car are very difficult without taking out loans. Done correctly, these kinds of debts can be fairly simple to manage, and getting a credit card and paying it off is a fine way to build up a good credit score (which in turn makes loans easier to get). Sensible loans with favorable terms can do a lot of good, while reckless or unnecessary loans can cause problems. Some Americans get into a debt spiral, where they take on a new loan to pay off an old one, but now they must pay off the current loan, and will probably continue that cycle. For a proper debt education, tell your children that debt is a natural part of life in a nation like the United States, and they should not be afraid of the word “debt.” Instead, they should know that there are both right ways and wrong ways to be in debt, and you can explain them in further detail for a complete debt education.
Young adults, when they get a proper debt education, should also learn not just how to earn money and save it, but also learn the right perspective. Take note that most people associate spending money with happiness, and advertisers and marketing companies know it (and exploit that fact). Children, when they are given money, immediately think of how to spend it to find happiness, usually by buying candy or toys that they can afford. As the child gets older, this idea scales up with them, and they start spending larger amounts of money to literally buy happiness. And yes, some people go into serious debt to keep this up, such as getting credit cards and quickly maxing them out or cleaning out their savings. This is reckless and can lead to serious trouble.
So, for a good debt education, consider telling your children that money does not always buy happiness, and to take this further, you can tell them that saving money can cause happiness, too. It is fully possible for teenagers and adults alike, if they know what they are doing, to unlearn the “buy happiness” habit and instead associate saving money with satisfaction and higher self-esteem. Your teenagers can learn to feel proud and satisfied with saving up money regularly and watch their savings grow, and this habit can benefit them well into later life. This can make it much easier to find a new home, for example, or hiring workers for roof repair or for plumbing services.
On a somewhat related note, keeping a gratitude journal can help just about anyone, young or old, avoid unnecessary debt and save money, while also being very happy about their lives. This can help break the “buy happiness” cycle, and it’s done when you write down all the things in your life that you cherish and are grateful for. This includes all tangible and non-tangible things alike, from your nice car or motorcycle to your photo albums, musical instruments, fancy clothes, a good relationship with family members, a happy marriage, good friends, and much more. This prevents you from taking these things for granted, and it allows you to see the true value of the things you have. Once you have that perspective, the idea of buying happiness with yet more possessions may seem reckless and silly.
Typical Life Expenses
It is time for a large topic: discussing the many ways a grown member of society will spend their money and sometimes go into debt. While your teenage children don’t need to hire an estate planning attorney right now, they should know what they are in for in the coming decades, so and this includes insurance, repair needs, legal representation, building up credit scores, and the like. Where to start? Getting a good job with a well-written resume is one thing, but a good debt education includes preparing for the long term. So, 20-somethings should be thinking about retirement, and sooner is better where that’s concerned. Even if retirement is some 40 years in the future, a young adult can greatly benefit their future selves by saving up for retirement and taking advantage of compound interest.
Studies show that saving up for retirement much sooner allows compound interest to make a big difference, and after a point, the worker doesn’t even have to add any more money to the account for the savings to build up. Someone who starts regularly contributing money in their early 20s can stop adding money in their late 40s or so, and by then, compound interest is so strong, that is all they need. By contrast, starting saving later in life results in lower totals by retirement age, and the retiree might have to take on loans just to cover their basic expenses. And that means going into debt.
What about insurance? Many different items can be insured, from your well-being (health insurance) to a vehicle to a house to a collection of hobby items. Art can be insured as well. During a debt education, teach your children that they should know the purpose of insurance, and tell them that insurance is something they can pick and choose. When it comes to health insurance, for example, they can browse a whole gallery of different options, then find one that suits their needs and their budget, too. They do not have to accept the first insurance plan that some other party offers them; instead, they find insurance that suits them. Young adults, if they have no serious health issues or conditions, might have minimal health insurance to save money, and they will rarely if ever need medical help anyway. By contrast, senior citizens often have expensive and powerful health insurance plans, since they typically have chronic conditions and often visit the hospital.
When your adolescents buy their own cars, they will have to cover insurance, and here too, there is a variety. Some plans are quite basic, such as liability insurance. If the driver causes a wreck and the victim pursues litigation, then they will get settlement money from the at-fault driver’s insurance company, not from the driver personally. Auto insurance may also help cover some costs for car repair or replacement after a nasty wreck, too. Here again, your children should know how to strike a balance between the costs of various insurance policies, and the benefits that those plans offer. It’s not a good idea to get very expensive insurance if money is tight, but then again, a decent insurance plan is an excellent backup if anything goes wrong. This is a matter of judgment and allocating money in a well-balanced budget for insurance expenses.
How about home repair? Your adolescent children don’t own a home, and many 20-somethings rent their living spaces rather than rent them. But eventually, your teenage children may own a home, and this comes with all kinds of responsibilities. They can visit the local hardware store to buy screwdrivers and paint for minor DIY home projects, which can be fun and save some money. But bigger projects call for professional aid, such as hiring glass services to fit in a new window, or hiring roofing experts to fix up a leaking or damaged roof. Hiring contractors can not only make the home more pleasant to live in, but it can boost the home’s value when the owner puts it up for sale later in life, too. Studies show that renovating a kitchen or the master bathroom may yield an ROI (return on investment) as high as 70-80%, making this a smart investment in most cases. Something similar can be said about landscaping work, too.
Hiring these contractors will save money in other ways, too. If a house’s utilities or hardware are compromised, then the house starts leaking money, and that is going to make a difference. How? Consider the HVAC utility, which warms up and cools down the house’s air as part of climate control. This uses up nearly half of the home’s electricity, and if that system is struggling and inefficient, then the electric bill is being driven way up. This may happen if the furnace has busted parts, for example, or if the windows are old and have air drafts in them. If the walls and attic have thin or missing spray foam insulation, the problem is made even worse. So, it’s worthwhile to have drafty windows and doors replaced, and spray foam crews can replace any missing foam in the walls or attic.
Something similar can be said about repairing the plumbing. Many American homes have leaks in their pipes, and leaking water will cost a lot of money and damage the house’s drywall and electrical components, too. Plumbers can fix or replace damaged pipes, and they can also replace old toilets, sinks, bathtubs, or shower heads with low-flow models that both look modern and save on water. They can also install a new water heater tank. Your teenage children should definitely know about all this before they buy their own home, so they don’t end up in a house that’s leaking money nonstop.
Tracking and Budgeting
For a complete debt education, your children should learn not only the above tips and tricks but also know how to track their budget and know the numbers concretely. It may difficult for someone to buy a cost-effective insurance plan or hire contractors if they don’t even know if they can afford it, but budget spreadsheets can change that. No matter how much or how little money a person earns, they should record their earnings per month, including any passive income that they have. Then, they should record their spending of all kinds: auto and health insurance, mortgage/rent, car gas, car repair, medical bills (if any), paying off student loans, and, of course, leisurely spending. Adding all this up accomplishes a number of things, and your children should do this when they are on their own and working for their own money.
For one thing, tracking like this allows a worker to realize if they are falling behind, and the sooner they recognize the problem, the sooner they can fix it. Also, tracking spending allows a person to diagnose any bad spending habits (often on leisure), and they will know how much to cut out and figure out what kind of expenses they don’t really need. Tracking like this makes it much easier to set up a clear and safe budget, so that person knows exactly what they can and cannot afford, and they can figure out how much money from each paycheck can go into savings.
During quarantine, your adolescent children can get a real head start on their adult lives with a solid debt education, and learn what kind of debt to take on and why, and when not to spend money. This can make their adult life much smoother, and even allow them to save for retirement later in life.