Normally, every parent wishes the best for their kids. Aside from just “wishing” for the best, what are you doing to make sure your kids are the best? By that I mean, the best version of themselves. Setting your kids up for a debt-free life will give them a solid foundation for their best life.
You just breathe differently when you are debt-free. And it’s easier to avoid debt than it is to dig your way out of it. If you’re digging yourself out of debt, this isn’t to discredit your progress. This is to motivate you to prevent your kids from falling into the same debt trap.
If you grew up in a household that avoided all money topics, then you probably realize how important it is to openly communicate about money with your kids.
Avoiding the discussion of finances with your kids can set them up for failure. Your kids will search for knowledge somewhere, and it might not be the safest place to look. So, provide your kids with a secure place to discuss money and get reliable advice.
Here are a few topics to start with…
1. BASIC BUDGETING
Teach your kids how to build a monthly budget. Better yet maybe let them sit in on your monthly budget planning. Leading by example is very impactful.
Show your kids how to tell their money where to go instead of wondering where it went. This basic money management can really help your kids be intentional with their spending and develop the mindset to avoid debt.
Explain the psychology of spending and the benefits of a cash budget. Studies show that consumers spend way more with cards than with cash. Acquiring these spending habits early will help reduce your child’s chances of falling into bad spending habits.
2. DEBT IS NOT AN OPTION
Once the budgeting process is engrained in their minds, add the fact that debt is NOT an option.
If there’s no option to get into debt, then kids are forced to budget for what they want.
This is great, because if you have to finance it, then you can’t afford it!
Don’t let your children think they can be a slave to lenders. Empower them to OWN everything they purchase.
3. CREDIT SCORE MYTH
You probably heard this plenty of times as a young adult, “you HAVE to build your credit score”.
Don’t let your kids believe this myth. You only need a credit score if you plan on continually getting into debt, so it’s really just a debt score.
If your child never gets into debt then they will never need a credit score.
“But what about purchasing a home?”
You don’t need a credit score for that either!
Instead, you go through the process of manual underwriting. Which is basically a hands-on review of your ability to repay the debt. Like looking into your income for the last 1-2 years, and your payment history of bills.
Once your child is ready for a home mortgage, help them understand how much house they can afford…
Your mortgage payments need to be no more than 25% of your monthly take-home pay, and you need to be on a 15-year fixed-rate mortgage.
4. DEBT-FREE DEGREE
While we’re breaking myths, let’s break the student loan myth.
You CAN go to college debt-free.
It’s crucial to talk about this with your children early on. Show them how to start researching the cost of schools they’re interested in, and how to budget for them.
Download the College Cash Flow Template to help them build the plan!
Going to college debt-free is serious work, and you should treat it as such. Just because you’re going to graduate debt-free doesn’t mean it’s going to be an easy street.
Once you have your plan in place you will see that it IS achievable. You just have to stick to the plan!
Set your kids up for a better future, openly communicate about money, and lead by example! Follow along for more finance tips!
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