You have told your children about the danger of strangers, the importance of wearing seat belts, the fact that smoking is only allowed if they are on fire and even then you are not so sure that they should never swallow a Tide capsule, that drugs are a dead end and no means no. Maybe you’ve even suggested that if you fall into quicksand, struggling is the last thing you should do.
But have you told them about the financial enemies they will sometimes face?
It can be easy to decide not to say anything. They’re not yet adults, after all, and do you really want your teenager to stay awake at night imagining how he might one day stay awake at night wondering how he’s going to pay off a $ 3,000 credit card with a 29.99% APR?
Nonetheless, if you really want to tick all the boxes of what your kids should avoid, be sure to include some of the financial mittens they might one day come across. If you’re wondering what things to waste money should be on your no-no’s list for your kids, tell your teens about the pitfalls below.
1. Payday loan stores
It is understandable that some people are drawn to payday loan stores. If you’re broke, don’t have a paycheck for awhile, and don’t want to ask your friends and family for a loan, you may feel like you have no choice. In fact, it was assumed that lots of federal employees during the recent government shutdown turned to payday lenders. Payday loan stores don’t ask you for a credit score, which is another reason they’re tempting, but they will ask you for things like your checking account and routing number.
As you probably know, payday loans are expensive. In some ways, they don’t look so bad at first. Usually, for every $ 100 you borrow, you will pay back that additional $ 100 plus $ 15. So if you borrow $ 300, you pay back $ 345. If you really Need that $ 300 to pay an electric bill, paying off $ 345 later won’t seem too bad. But, as you can explain to your kids, if your next paycheck is $ 500, after paying $ 345 at the payday loan store, you will only be left with $ 155. What if that $ 155 runs out before the next paycheck, what could you do? Go get another payday loan.
Claire Pearson is an Atlanta-based life coach with two children aged 15 and 11.
“When we see advertisements for payday loan companies and now there’s a new application this lets you get paid before you get paid we have discussions about budgeting, ”she said. And if your kids never watch TV with you because they watch YouTube on their devices and therefore you never see those ads, display them the next time you walk past one of the billions of loaner stores on. salary of your city. Your teens might not look like it, but they’ll listen to you.
“There is a conversation going on in our house about life within your means and by paying yourself first. Ideally, you don’t want to live off paycheck after paycheck, ”says Pearson.
2. Car title loans
Now payday loans may seem like the smartest thing around when you think of car title loans in comparison. You can lose your shirt with a payday loan, but with a car title loan, if you have a hard time paying back the money, you can lose more than just your wardrobe. This is because you are placing your actual car title as collateral.
Chantay bridges, a mom, business coach and real estate agent in Beverly Hills, says she can see why some people buy into the idea.
“You assume that when you get paid, you will pay off your loan and get your title back,” she says.
But now is a good time, she says, to talk to your kids about the assumptions.
“What if you don’t get paid?” You could be fired. Your employer could declare bankruptcy. You may get sick and be unable to return to work. Just about anything can happen that you didn’t expect. Now, in addition to your lost job, you could also lose your vehicle.
She adds something else to mention to your children: “You have given them the full right to take your car in case you are unable to make a payment. Let’s not forget that they have a copy of your car keys.
3. Stores for rent with option to buy
As you probably know, but maybe your kids don’t know, option-to-buy rental stores are notoriously expensive. They seem cheap, as you usually pay a small amount of money per week for a TV, refrigerator, or sofa, for example, until the day you own the item. But over the life of the loan, which is often 12 to 24 months, you end up paying between two and three times the amount.
It’s not like buying a house, which you’ll pay a lot of interest on, but one day you can sell it, and probably for a lot more than the original sale price. It’s not even like taking out a loan for a car, which you’ll likely use as a trade-in for another car one day. The $ 600 couch you paid for $ 1,200 at an option-to-buy rental store will one day end up in a cousin’s basement as a gift.
But you know all this, so we should probably spare you the lecture. Do your children know this? Did you mention the price of these stores? You probably see them all over your neighborhood, perhaps near payday loan or car title stores. Tell your children that when they pass them, they should keep driving.
It can be helpful, especially if your teenager has a job, to talk about how much he would have to work to pay interest on a hire purchase or interest on a loan, says Beth Logan, senior tax advisor at Kozlog tax advisers in Chelmsford, Massachusetts.
“Ask teens to consider the number of hours at their current job – after tax they have to work to buy the item they want to buy,” she suggests, adding, “Even if the parent buys the ‘article, the teenager should consider,’ Is it worth working eight hours? ‘ “
4. Store credit cards
You probably know full well that the 30% interest on a store credit card (usually) isn’t a big deal. Your teens may not be so aware. Then, of course, there’s the fact that lenders like to see the credit utilization rate at 30 percent, which means ideally you never use more than a third of your credit on a card. store credit. So a shopping spree, even if you pay off the card quickly, could undermine your credit.
Store credit cards may work well for some people, but as you will tell your teens, what if they’re not one of those people? A store credit card can be a gateway to a life of revolving debt and low credit scores.
5. Food delivery services
Using them every now and then, of course, fine. But “don’t make food delivery a habit,” advises Adam Glassberg, financial advisor at Savant Capital Management in Downers Grove, Illinois.
“Food delivery services have exploded in recent years as companies like GrubHub and Uber Eats deliver from restaurants that didn’t offer this service just two years ago. As convenient as it may be, dining out and paying for delivery charges and tips can turn into a money pit if done regularly, ”he says.
It’s hard to argue with that. True, if you drive to buy food, you are paying for gasoline, and your time is worth something. But typically, you pay $ 4-8 per restaurant order for these services, and that doesn’t include the tip. And it’s not like restaurant food is cheap to begin with.
Yet this is not a payday loan or car title loan service. That said, if you make sufficient use of food delivery services, you may need to take out a payday loan.
Of course, this is not an exhaustive list. We haven’t even mentioned buying a new car you can’t afford, loan sharks, vacation rental scams, or cat fishing scams. People who want to fall asleep count sheep. If for some reason you want to stay awake at night, you can think of all the financial traps that await your children when they become adults.