What has surprised you most about the young people you have met when doing your ‘financial makeovers’?
Attitude-wise, young adults today have more in common with their Great Depression grandparents than with their Baby Boomer parents. They are the new Recession Generation. Their pre-recession habits may have caused their financial troubles, but now they think twice before running their plastic for designer dresses or fancy phones. I think these changes will permanently impact the way they view money, and hopefully they won’t be back in this mess in ten or twenty years.
Living in NYC, do you see a shift in the money culture there- ie – is it actually becoming chic to be Frugal in NYC??
I definitely think there’s a new-found appreciation for frugality. But I think of it as ‘back to normal.’ A few years ago it felt like there was no end to money. Nowadays, it’s okay to pass on invitations to expensive restaurants or to hunt down the best price for that new sofa, or to even say “I can’t afford that right now.” Let’s hope it lasts. I do a regular spot for the national public radio show The Takeaway, and it was all about budget brides and how cheap is the new chic. I also think that the Green movement has been combined with the frugal movement and you get a low-cost option that’s good for the environment. It’s a win-win.
As a mom of three, how do you advise teaching children about the dangers of debt? Or even broaching the topic of what debt is? Is there a certain age at which you think we should start talking to our children about debt?
Credit cards are the new smoking! As with tobacco—if you don’t talk to your kids about debt at an early age, they won’t learn its dangers. In previous generations, children were not taught about the hazards of high-rate debt, and they fell into dangerous dependencies. The bottom line is people need to understand that borrowed money will have to be paid back—and those payments can potentially harm your future financial health. (That’s even true for other kinds of debt, like student loans, which in some cases can be just as harmful to a financial life as credit card debt.) So the sooner families start talking about money topics like budgeting and prioritizing, the sooner people will understand how much the real world costs, and hopefully they’ll be able to borrow and spend smartly.
As parents, there’s a lot we can do to inform how our children view and handle debt. It doesn’t have to be done through a long lecture. Instead, start by implementing the behavior you’d like them to model. Use time together to discuss why you make certain financial choices. For example, when you’re shopping, spend a few minutes price-comparing, or explain how a credit card actually works. The goal is to make sure your kids are aware of how to handle debt responsibly. Credit cards are actually pretty simple: pay on-time, pay in full each and every month, and use the card for convenience—not to buy things you can’t afford now.
Some good news is that, thanks to the CARD Act which kicked into effect February 22, it will be much harder for people under 21 to get cards—they’ll have to prove they can pay or get a parent to co-sign. That makes our job as parents a little easier, since, as with cigarettes, the law is on our side. Also, a new student loan repayment plan called Income Based Repayment kicked into effect last summer—and that’s a great new option for people whose student debt payments are consuming most of their salary. It allows you to pay based on what you can afford, rather than how much money you owe.
Many thanks to Beth for her insights and for helping me to Get A Financial Life all those years ago! For more great tips from Beth, be sure to check out her website www.kobliner.org, and you can also follow her on twitter at www.twitter.com/bethkobliner.
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