Explain Credit and Debt to High School and College Students

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You hear so much about the negative side of debt that it could sometimes seem like the situation is hopeless. How can you expect to train your children in smart money management techniques when student loan debt is rampant, huge corporations file bankruptcy, and everyone else appears to be living the good life on credit cards, leases, and refis? It may be hard, but it is possible.

Credit and debt, when used wisely, can provide access to services and things you might not otherwise have been able to afford. Attending college to obtain an education that is needed to get a higher-paying job, for example, would be difficult without the use of student loans. But an undisciplined use of credit during college can start a lifetime of debt, leading to an ever-deepening hole of despair as borrowers valiantly try to repay all that they have borrowed plus accumulated interest. So how can parents explain credit and debt to their high school and college students to help them avoid a lifetime of financial pain? Here are a few ideas:

• Start Young: Some parents feel as though they have to shield their children from money matters, but this is a great disservice. You can start explaining the concept of money when a child is young, involve him or her in saving money towards a particular goal, and demonstrate in basic terms what happens when you have to repay borrowed money with interest.

• High School: Other parents think that they have to shoulder the financial responsibility for college on their own. They never discuss the cost of any colleges with their child and often put a huge financial burden on the family. Teach your high school student how to discern costs between various colleges, and discuss available money to pay for each. Learn how much financial aid will cover, and how much you will need to borrow as a family in student loans. If there isn’t enough money to pay for a selected college, carry on open and honest discussions with your child about possible solutions to this problem.

• College: Freshman students often get over-exuberant being out on their own, and having their own money for the first time in their lives. They don’t realize the ramifications of using student loans or credit cards to pay for sometimes trivial expenses. Help your college student set a budget, don’t over-borrow on student loans, and discuss repayment responsibilities for any money which is borrowed.

Get tips on difficult money discussions in my new book, Secrets of a Financial Aid Pro. It answers questions that help parents talk to students of any age about money and debt. It also takes readers through the entire college money process of applying for financial aid, using student loans, and searching for college scholarships. Order it now, no matter how old your child is, and start involving children in discussions about how your family will pay for their college education.

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