A recent Newsweek article said millennials are in record-setting levels of debt. The question now is why? What keeps them in debt?
-More than anything else it’s a lack of financial knowledge.
-For many their initial financial troubles began with student loan debt when the bulk of it could have been avoided. For example, attending a college with a $260,000 price tag for a degree whose entry-level salary is $35,000 was a bad financial decision. A local regional college, while living at home, would have been much more economical. Unfortunately, neither their parents nor their high school counselor understood the math well enough to counsel them beforehand. That was their first error.
-Secondary to student loan debt is the idea that someone else will eventually pay for it, rather than taking responsibility for the contract they signed. There are plenty of opportunities to legitimately pay their debt down and get it off of their backs, but that requires dedication to getting out of debt. Having and sticking to a budget is essential. A budget tells your money “where” to go.
-We live in a culture where having and using credit cards is common and expected. While using credit is not a problem, paying the minimum rather than paying off the credit card each month causes more debt to build up. Young adults either were not taught about the concept of compounding interest or they were too young to understand it at the time.
-Another issue that millennials are having is their lack of professional skills which may prevent them from getting the raises that can help them to pay off their debt. For the last decade, employers have seen an increasing reduction in professional skills (what used to be called soft skills) in employees coming out of college. Soft skills such as communication, & teamwork, among others, are essential in getting promoted and eventually getting into a management role.
So what can you do, as a parent to prepare your teen and young adult for a life of financial freedom?
-Teach them how credit cards work. Understand that there is a difference in how we spend money based on whether we use cash or cards. Using cards we spend 15% more, than if we had used cash. Can you afford that? And always pay off the balance before the 30-day grace period. If you can't pay it off by the end of the month, don't buy that "thing."
Instead, save for it in your budget.
-Teach them how to create and live on a budget. Tell your money where to go and how to save for emergencies and for what's important in the future.
-Teach them (1) to select a college and career that won't leave them in debt for decades, (2) what colleges and employers are looking for that they will pay for, and (3) how to find and win scholarships. Take the Cracking the Code to Free College course for parents to understand how the game is played and to come out ahead.
Most parents believe their kids will get a college scholarship. But the reality is that only 1 in 8 wins. And 97% of those only win $2500 or less!
Is it worth it?
Not unless you're in the 3%
100% of my clients win scholarships. And 31% win so many scholarships that it more than covers their cost of attendance. They get paid to go to college!
Take the Cracking the Code to Free College course for parents and be in the 3%.