How you can help your children avoid debt

Four debt traps and how you can help your kids avoid them.

By Cheryl Embrett

Jessie's financial fiasco
When 18-year-old Jessie Watson went on a two-week holiday last summer to visit family, it turned out to be a financial fiasco. She came home several thousand dollars poorer, a result of unexpected cellphone and credit card debt. "It was definitely a shocker," she says.

Jessie blames the $750 cellphone bill on her failure to read the fine print on her contract. "I didn't realize I'd be charged long-distance fees for calling my voice mail or I would never have checked in as often as I did," she says. (Jessie called her voice mail a whopping 160 times while she was away.)

The $2,500 on her credit card (cosigned by her parents) was the result of a spending spree on clothes and gifts that ka-chinged out of control. Jessie had set aside $500 from her part-time job; that was the limit on her credit card. She figured that when she reached that limit, the card would be declined. So she spent and signed, spent and signed, waiting to be declined. But it never happened. Unbeknownst to Jessie, the bank had raised her limit to $5,000.

The Grade 12 student from Cochrane, Ont., is now struggling to pay off her debt while also trying to save money for college in the fall. "It's almost like I need a second part-time job," she says. "It's so stressful."

The common problem of credit card debt

When it comes to racking up bills at a young age, Jessie is hardly alone. Six in 10 Canadians between the ages of 18 and 29 report they currently have some debt, with credit card debt by far the most common, according to a 2008 study by the Financial Consumer Agency of Canada (FCAC). Half say their debt load is as much or more than they can handle.

Financial experts aren't surprised. "We're constantly bombarded with the message to buy, buy, buy," says Pat Foran, consumer reporter for "CTV News" in Toronto and author of the Smart Canadian's Guide to Saving Money (Wiley, 2009). Many young people, raised on instant gratification and inadequate financial planning, are happy to do just that. Their eagerness to spend – as well as their influence over household purchases – makes them highly sought-after consumers.

The "buy now, pay later" mentality has landed many youth in financial hot water and seriously damaged their credit ratings, which can delay future plans such as getting a car or student loan, renting an apartment, starting a business, and (further down the road) starting a family and buying that first home.

"People under the age of 25 are particularly ill-equipped to think about consequences," says Stephen Perrott, a professor of psychology at Mount Saint Vincent University in Halifax. "They have a very here-and-now view of life, and can't project into the future very well." That makes them easy prey for these debt traps.


Page 1 of 4 – Find out how to avoid the credit card trap on page 2.



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