If you’re a parent concerned about the spending habits of your son or daughter, you’re not alone.
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. And faced with higher living costs than previous generations – not to mention the lure of online shopping – many young Aussies are finding themselves spending beyond their means leaving them spiralling into debt before they even hit the age of 30. Once caught in this trap, they might get stuck paying interest upon interest without even chipping away at the original debt.
By making simple changes in their spending and saving habits, they 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
Avoid a debt spiral by looking closely at their regular income and expenses and make a realistic budget they can stick to. Add 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 tap 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.
This document contains general advice. It does not take account of your objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision. This document has been prepared by Count Financial Limited ABN 19 001 974 625, AFSL 227232, (Count) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. ‘Count’ and Count Wealth Accountants® are trading names of Count. Count advisers are authorised representatives of Count. Information in this document is based on current regulatory requirements and laws, as at 23 October 2015, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Count, its related entities, agents and employees for any loss arising from reliance on this document.
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.