Teaching teens about online borrowing

Teaching your teens to be financially savvy can begin at almost any age. After all, avoiding debt is simply a matter of living within your means, isn’t it?

Not necessarily.

Now that credit is taken for granted as a means to maintain your lifestyle, children need to understand that there is a cost to borrowing.

Many people currently on debt management plans put their current situation down to a lack of financial awareness and easy access to credit. So, as the need for debt management increases, you can do your bit to make sure the next generation of young spenders don’t fall into the same trap.

Of course, unsecured debt only becomes a problem when you can’t meet the repayments, prompting many to question their borrowing and use of products like payday loans and personal loans.

1. How to explain the cost of borrowing

Explaining the concept of debt interest to younger children sounds like a minefield until you adapt the problem to suit younger minds. Perhaps the simplest way for children to understand interest on borrowing is via a practical demonstration next time your child asks for a small toy: Agree to get it, but tell them it will cost them 50p more than the actual price because they are ‘borrowing’ from you. Agree small repayments from their weekly pocket money so they have a date when they will have paid the ‘debt’ off.

Once purchased, your child is bound to lose interest in keeping up the ‘repayments’ so next time they want to use their weekly money for something else , agree – at a price: Explain that by missing a payment they’ll have to pay 5p more each week in ’charges’ to pay off what’s owed by the same date.
 

2. Use pocket money to show how payday loans work

To be used discretioningly with teenagers you can illustrate the perils of a payday loan on already fragile finances with small amounts set at a relative interest rate. Payday loans are really very simple to understand, as most lenders will advertise their rates so you are aware of what they are likely to cost you even before you apply. You should set up a game where by a tin of coins is used in the same way. This will quickly teach teenagers the nature of loans and the interest involved.

In the real world payday loans can be for amounts of up to £1,000 but you should set the limit for £10 in your game and work your way up from £2.

The loan is repaid in full when you next receive your monthly salary, usually being debited automatically from your debit card, this is agreed when you complete your loan.

Re-enact this aspect so make a loan for example of £2 over a month for interest of £2 + £1. At the end of this month. If you wanted to check for latest rates these can quickly be related.

3. Set an example

The best way to teach children the finer points of money management is by setting a good example yourself. It’s no coincidence that the children of good budgeters tend to be more money savvy themselves, so don’t be afraid to introduce your child to saving, budgeting – and even borrowing safely from an early age. By turning it into a game you could even make it fun to learn the tricks of money management.

Gender divide when it comes to managing your money

Interestingly, according to research carried out by Which =, 10% of couples, happily together in exclusive relationships, abide to a bizarre ‘gentleman’s agreement’ whereby the man is always known as the main breadwinner among friends, family and colleagues even if it is the woman who actually earns more money. 10%, that’s 1 in 10, is quite a high percentage – especially when you consider what maintaining the earning status quo means long term for women in business.

This highlights that some women are now, on average, earning more money than men (£14,000 per annum more) especially in traditionally male dominant sectors, like engineering and law. In fact, in the last three decades, the number of female breadwinners in their 20s and 30s has skyrocketed by 15%.

Indeed, according to their survey, which was conducted to research whether workers of both sexes were aware of the benefits of taking out loans in the UK, 6% of men openly resented to being lower earners in the household, while another 7% claim to have lied about whom the main earner is while out and about, kicking it with friends.

What does this mean for women in the workplace?

For so long, women have fought for equal pay and job opportunities, and now, is it women who are paying the price for the fight? Has society’s values not caught up? Maybe changing the attitude towards higher earning women will take longer than the financial alignment itself.

In times gone by it was the norm to expect the male to ‘hunt’ for food; bringing home more slices of the bacon, in terms of a hefty pay packet. The women accommodated more traditional roles, but that’s not the case these days.

Women are stamping their authority in traditionally male dominant industry sectors. According to the research, it’s ladies working in engineering and governmental sectors who are more likely to earn more than men – 51% and 48% respectively. Other areas on the rise include finance and transport (both 45%), education (44%) and law (43%).

While 10% of couples may agree to keep the status quo, 9% of the 2,430 British women who took part in the survey said that they would plain refuse to date a man if they found out he earned more than they did – again, interesting.

Money, it seems, continues to remain at the very heart of all human relationships.

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