4 Things Your Teen Needs to Know About Debt

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It's been almost 10 years since I donned my bright red cap and gown, graduated from high school and forever put behind me the days of being a "Huskie" -- which, like any other self-conscious teenage girl, I was grateful for. I thought I was ready for college, but there was one thing I was lacking -- financial know-how. And my lack of financial acumen led to a long list of financial mistakes.

The problem is that within five years of leaving home, most teens are faced with the decision of taking out student loans, buying a car, signing up for credit cards or even taking out a mortgage. And it's up to parents to instill some wisdom in those bright-eyed, bushy-tailed youths before they learn it the hard way.

Your teens shouldn't be burdened with your financial stress, and they definitely don't need to know all of your misdeeds.
But they should know the basics of the common financial situations they're soon to encounter. Whether you've done right with your money, made a boatload of financial snafus, or a little bit of both, here are some worthwhile discussions to have with your kids:

Student Loans: While student loans are oftentimes a necessary debt, they're still money owed to someone else. And unlike many other forms of debt, this one cannot be discharged in a bankruptcy. If you had student loans, you can help your teens by telling them how long it took you to pay them down, as well as what you had to sacrifice along the way.

Car Ownership: If you don't have a car loan, you should let your teenager know your motives for paying in cash or your journey in paying down your car. If you do have a car loan, it might be helpful to explain that it's more than just a monthly payment. Sit down and run the numbers with them, demonstrating the money lost to interest. And it just might be the extra motivation you need to pay it off for good.

Credit Cards: If your 18-year-old has a pulse and a mailing address, credit card companies will find him. That's just a fact of life in the good ol' U.S. of A. Your teenagers should know the responsible ways to build credit and the dangers lurking behind every unnecessary swipe.
You can try to convince them that credit cards, like debit cards, should be paid off in full each month. If you've ever had credit card debt, your teen doesn't need to know the details, but he should know all the work that went into paying it off.

Mortgage: While a mortgage usually isn't seen as a mistake, the timing in getting one can be. Make sure your teen knows the various considerations that go into buying a home, such as the ebbs and flows of the housing market, private mortgage insurance, and interest rates. It's important to stress that there should be no rush to do the deed -- er, rather, have a deed.

What might be second nature to you is a whole new world for your soon-to-be independent teen. The more he knows about finances, the better. And sharing your personal financial experiences -- the good, the bad and the ugly -- will help. Yes, even that time you bought tickets to Twisted Sister on credit for you and your roommates. Let them learn from your mistakes -- and, in the process, keep them from making a few of their own.

Joanna and Johnny are the writing duo behind OurFreakingBudget.com, a personal finance blog documenting the joys, pains and realities of living on a budget.


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