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If you’re a parent concerned about the spending habits of your son or daughter, you’re not alone. Here are some simple suggestions to help your loved ones take back control and stay out of debt.
When you’re young and living life to the full, it can be tempting to see your credit card as a bottomless well of money. Additionally, the younger cohort are faced with higher living costs than previous generations – not to mention the lure of online shopping – many young people find themselves spending beyond their means on a regular basis.
This can leave them spiralling into debt before they even hit the age of 30. Once they’re caught in this trap, they might get stuck paying interest upon interest without even chipping away at the original debt.
It doesn’t have to be all doom and gloom, with some simple changes in their spending and saving habits, young people can move closer towards a debt-free future. Here are some top tips for the millennials in your life, so they can avoid the debt spiral.
Tip 1. Spend wisely
It may sound obvious, but the easiest way to stay out of debt is to avoid spending beyond your means in the first place. For many people, the biggest threat is the impulse purchases they make on their credit cards.
Getting this habit under control can take some discipline. Your child might learn to avoid temptation if they leave their credit cards at home and only spend the cash they have on them when they go out.
Tip 2. Make a repayment plan
The more credit cards your kids have, the more they could end up paying in fees and interest. Instead, they might be better off consolidating their debts onto a single low-interest card so it’s easier to focus on paying it off.
The quickest way for credit card debt to get out of hand is by missing the repayments. That’s why it’s worth encouraging your kids to pay off their balance every month – or at the very least, to make sure they meet the minimum payment amount.
Tip 3. Draw up a budget
Young people (or anyone) can also avoid a debt spiral if they look closely at their regular income and expenses, then make a realistic budget they are able to stick to. By adding up their outgoing costs, including things like rent, bills and student fees, they’ll know exactly how much they have left over each week or month to spend on themselves.
Writing down expenses is also a useful way to work out where the money is going – and finding ways to make small cutbacks. For example, buying a $4 takeaway coffee each day might not seem like much of a luxury, but it quickly adds up to more than a $1400-a-year habit.
Tip 4. Put money aside
For some people, the slide into debt can begin when unexpected costs crop up – like car repairs or medical expenses. Even if your child is managing their finances okay on a day-to-day basis, they should also try to have enough money set aside to cope with an emergency.
It’s never too early for your loved ones to put together a regular savings plan, so they’ll have extra funds they can access into – just in case.
Tip 5. Talk about money issues
It can be tough to get your kids to open up about their financial situation, but it’s even harder watching them slide further into debt. Remember, money matters are often highly personal, so it’s important to approach the debt topic with sensitivity. If your child is having trouble managing their money, the best thing you can do is help them find a solution.
As a parent, your first instinct might be to step in and offer financial support – but this may not always be in your child’s best interests. Instead, you can always ask your financial adviser which course of action to take and their advice on helping your kids pay off their debts, including sticking to a budget and start saving for the future.
For more financial advice, or to know how best to help your Gen Y child better their own finances, give the friendly team at Acumon a call today on 4931 1100 to set up an appointment. We’d be happy to help the whole family get off on the right financial foot for 2019.
General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.
- Australian Scholarships Group, ASG Planning for Education Index, 2016.