Educational costs at an all-time high and continue to rise. Over 65% of college students get financial aid, with the average senior having over $19,000 in debt.
While it is a great investment to borrow money for educational purposes, increasing your earning power, too many students blindly borrow the money without a real concept of the value of a dollar, lacking the diligence it will take to pay off the loan in the future.
In addition to student loans, the average college student has $2,700 in credit card debt. That debt will not be paid off easily as most college graduates enter the work force in entry level positions, even if they are within their field of study.
Combine their initial income restrictions with the fact that most young people do not have a solid concept of money and you have a recipe for disaster. Sophia Jackson, a counselor for the Consumer Credit Counseling Service, states “it’s absolutely epidemic the debts I see with young people… it follows them into their 30s and 40s.”
Being saddled with debt from an early age without the knowledge of how to pay it off, leaves many young people in a life-ling relationship with debt.
$20,000 from college, turns into $30,000 in additional debt from credit cards in your 20s, maxing out lines of credit and possibly bankruptcy.
Parents have an obligation to education their children on managing money and any debt they may accrue. The problem is many parents are life-long slaves to debt from their youth.
Their children may not know about their parents’ debt because they live in a big house with a nice car and take vacations every year, but that can all be a mirage.
A properly educated student will know the value of a dollar, how interest works for and against you and how to properly budget money in order to live within for means and plan for the future.
Student loans are now averaging over 7% interest. With a $20,000 principal, a new graduate would pay $233/month to pay off the loan in 10 years.
That amounts to over $8,000 in interest, or nearly $1,000 in interest each year. For the $2,700 in credit card debt, it would take nearly 3 years with $100/month (that’s assuming 18% interest and not accruing any additional debt).
That’s over $300/month in debt payments for a young person just starting out. Everyone is in a rush to grow up and live an above-average life, but most people fresh out of college cannot sustain that lifestyle. They want a big place to live, a new car, expensive clothes and eating out at nice restaurants a few days a week.
Educating kids when they are young about money management, saving and living within your means can literally save their financial lives. It is the greatest gift you can provide.
Start an IRA for them, open a college fund and investment money into the account as a birthday present each year. Teach them about compounding interest and the beauty of money and time.
Time is always on a young person’s side and it is never too early to save. Savings $50/month for the first 18 years of a child’s life will accumulate $36,000 for their education by the time they leave for college.