How you can help your children avoid debt

The student-loan-as-free-money trap
"A lot of my friends treat education money [student loans, etc.] as free money," says Corey Smith, 23, who graduated from Dalhousie University in Halifax last year debt-free. "They want to use all the money on themselves, on fun things. They think they're going to get big jobs when they graduate, but the big jobs don't always come. And six months after they graduate, it's payback time." While previous generations had their own share of "OSAP parties," they didn't pay for tuition and books on credit cards as a result.

Because we're a debt-accepting society, students seem to be more debt accepting, especially in their first few years of school, says Bonnie Neuman, vice-president of student services at Dalhousie University. "Many of them are out on their own for the first time and it's their first time managing money."

Avoid the trap
Encourage your kids to treat student loans like any other kind of debt, says Gunn. "The faster they pay it down, the faster they can free up money." They should try to make extra payments toward the loan, even if it's only $100 a month. If your kids work, the most painless way to do this is to have it transferred from their paycheques. To track a student loan, visit the Human Resources and Skills Development Canada website.

Teach your kids money smarts
Odds are if you teach your children how to handle money early in life, they won't make expensive mistakes later on.

Kimberly Smith and her husband always made it clear that they weren't going to spoil their kids by paying their way. "We gave them allowances and opened savings accounts for them at a young age, talked to them about money and encouraged them to contribute to their education," says Kimberly, a primary school teacher in Dartmouth, N.S.

Her eldest son, Corey, 23, graduated last year debt-free. "Sure, there are things I would have liked to have done along the way," says Corey, "but I'll do them later when I have the money."

To bail or not to bail?
If little Johnny runs up $900 on his credit card, Mom and Dad might feel inclined to pay it off and say, "Don't do it again," out of love, says Foran. But chances are, Johnny is going to do exactly that.

Foran suggests taking the middle ground. "Help kids see the error of their ways. Help them pay back a portion of the debt and then closely monitor the situation to make sure they don't do it again."

*Name has been changed.