Starting Out with an Insurmountable Debt Load

This morning, we talked about the burden of caring for parents and the “sandwich generation.” This afternoon, let’s look at the burdens of younger people.

Yesterday evening, I heard a fascinating story on Marketplace about how millennials are likely to be in debt their entire lives, and take some debts to their grave.

There are a pile of reasons for this, and poor decision making is just one of them. One big reason is a disintegration of good consumer education and money management in schools. Another is the enormous student loans most college students face today. Yet another is the weaker pay that younger people face as the ratio between starting salaries and the cost of living continues to get worse. Yet another is the ease at which young people can get student credit cards and consumer debt. Yet another is the continued blurring between “wants” and “needs” that fills up modern society.

Add those all up and it’s really not terribly surprising that people graduating from school today face an unprecedented debt load.

What can you do about this if you’re a millennial? Generally speaking, the term millennial refers to people in their early thirties today down roughly to people in junior high school.

One, be aware of the enormous, expensive trap that awaits you when you graduate high school. There’s going to be huge student loans, easy credit, and lots of temptations. If you dig into those temptations, you will be paying for them the rest of your life. It’s not just empty words – that’s the point of the above article.

Two, don’t sign up for credit cards. Just don’t. Get through college without any other debt than your student loans.

Sure, that might mean living on the cheap side of things, but that’s part of what college is about. Focus on your studies and the college experience, not on taking credit-fueled trips and goodies.

Three, if you’re not sure what you want to do, take general credits at a less-expensive school, then transfer. That will cut your college costs drastically. Trade schools are also an option – electricians and carpenters always have work available to them.

What can you do about this if you’re the parent of a millennial? There are a few steps you can take, too, if your child is in that age group (or even younger).

One, talk about money. Make it an open topic in your home. Make good personal finance something you talk about on a somewhat regular basis.

Two, walk the walk as you talk the talk. Don’t talk about being careful with your money then spend it like it’s going out of style. Demonstrate good personal finance habits. Don’t just talk about them.

Focus particularly on the things that are obvious to your children. Don’t just go buy the most expensive items all the time. Don’t spring for that new car with an attendant car loan. Instead, get other, lower cost options that fit better within your budget.

Three, make it clear how you’re eliminating and avoiding debt. Debt is a trap, one that holds you in place, and it’s a very hard trap to get out of. Your focus should be on eliminating any and all debt you have, because your behavior is an example to your child, not just your words.

Every time I examine the situation that students have as they graduate from college, I shudder because the situation seems worse every time I look at it. The best thing that parents can do is prepare their children with knowledge and with actual examples on how to deal with it.

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