4 Common Questions About Teen Debt Management

Written by on June 24, 2013 in Money - No comments | Print this page

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debtproblemsDebt is sadly no longer a concept reserved solely for the adult population.

With increased fiscal hardship and a consumerist society, teenagers are being embroiled in the credit system, gaining credit cards and loans to pay for goods and services.

Although a part of the adult world, credit can be dangerous as without proper responsibility, people find themselves with a mountain of debts and not enough money to crack it down.

This is unfortunately becoming the case with teens allured by store cards and the need for continuous spending. However, this should not only be taking as a warning to parents, but as a teaching opportunity to have your children understand fiscal responsibility from a younger age than perhaps you would have done.

Due to this, there are some commonly asked questions regarding debt management for teenagers who find themselves with bills they are unable to pay, and those unwilling to have their teenagers in a similar situation.

Here are some practical answers following four of the most commonly asked question regarding debt management for teenagers.

1. Should a Teen Have a Credit Card 

There is much dispute over whether a teenager should be given the responsibility of a credit card.

Despite the convenience it gives the parents, teenagers who are unable to grasp the concept of budgeting and who are unwilling to watch their spending, may run up bills that they cannot afford and that you, as a parent, may also struggle to cover. 

However, giving a teenager a credit card can be a little more beneficial than giving them an allowance. Firstly, it builds their credit score, and it serves as a fantastic teaching mechanism to have them understand the importance of not spending more than you can afford.

Despite this, it is imperative that if you give a teenager this leeway, that you follow up by imposing the financial sanction when they overrun their spending.

They will not learn with free range, but will learn quickly when they understand the financial implications to themselves for frivolous spending. 

2. Is a Credit Score Important to Teenagers?

Credit scores have become a term that is very much used frequently in day to day life but was perhaps less heard of twenty years ago. This is mostly due to the economic crisis and the unwillingness of creditors to lend money as easily as before.

Nowadays creditors want assurance that the people they lend money to, have a knowledge of how to responsibly pay back a loan. In other words, they do not want to lose money to the next generation too.

With this in mind, securing your child with a credit score early has become imperative to their ability to take out a mortgage or purchase a car on finance. It may even affect their ability to purchase a cell phone contract.

Unlike before, no credit score is now as bad as a poor credit score as it gives no creditor reason to trust that the money will be returned. Credit cards and store cards are a good way to help your teenager manage this credit and effectively, debt if it turns out badly.

3. Are Parents Liable to Teen Debts?

This question is one of the most common teen debt management faqs and it relies on circumstances mainly.

If the teenager is over 18 and has not entered a legally binding guarantor agreement with their parents, the parent is not liable to this teenager’s debt. If they are guarantor, then they are liable to the debt.

The same goes for a parent who has authorized a teenager to use their own card. However, if a minor obtains a credit card through misrepresenting their age, they are not responsible for the debt, neither are the parents.

This is because the contract is fraudulent and therefore does not stand.

4. Will Saving Prevent Teens From Debt?

Parents often wonder whether they should teach their teenagers to save a large proportion of their money to prevent them from getting into debt later.

There is certainly a lesson here in so much as teaching your child the responsibility of money and how to prevent the situation of having no money for a rainy day.

However, be careful with insisting that only savings can help you. Unfortunately, we live in a credit fuelled world now and this is a resource you child can use, as long as they are responsible.

Teaching responsible debt management is as crucial as teaching savings. Equally, drumming it into a child or teenager that saving is the only way, prevents them from coming to you if they find themselves in financial crisis as they will feel either too scared to disappoint or too proud to ask.

In conclusion, it is important to understand that young people are heading into a world of credit and need to understand how to prepare for this as well as deal with it.

This means teaching savings, debt management, value for money, and responsible spending. Starting at an early age is usually the most beneficial idea as it allows a child to grow up with instilled principles regarding finances.

Mark Harris is a freelance writer who loves his job. However, he often finds that freelancing can bring in fluctuating amounts of money each month.  As a keen kayaker, he wanted to save for a new vessel but was not sure how to do this. Thanks to the help he received from http://www.jubilee2000uk.org/, he can carry on exploring Canada’s beautiful west coast in his brand new kayak that he was finally able to buy.

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