Young adults urged to be intentional about avoiding debt
ROSE Miller, manager of strategic empowerment programmes at the JN Foundation, is urging young adults to tread cautiously with their expenditures to prevent unnecessary debt in the long run.
Miller gave the advice in observation of ‘Get Smart About Credit Day’, which was observed on October 19. ‘Get Smart About Credit Day’ is an initiative adopted from the American Bankers’ Association Foundation and is observed annually on the third Thursday of October.
Citing one such debt trap, Miller pointed to the misuse of credit cards. She noted that although credit cards are useful; being easy to use, convenient and especially helpful during an emergency, they ought to be used wisely.
“Yes, it is nice to have a credit card, however, to ensure you are not caught in the debt cycle, you must take certain steps, such as exercising a high level of discipline, spending according to what you have budgeted for and further, that you pay the statement balance in full and on time to avoid interest,” she warned.
The manager for strategic empowerment programmes at the JN Foundation also advised not to succumb to the lure of hire purchase in an effort to immediately acquire household items.
“Be very careful because the interest rate associated with hire purchase is very high. I know you want nice thingsâ€¦but adjust your expectations and work with what you can afford,” she informed, noting that it is better to save towards these purchases, or utilise alternative methods of financing such as layaway plans.
Avoid Payday Loan
She also advised young people to guard against the tendency of accessing payday loans because, again, these carry high interest rates. These high rates, she said, can make it very difficult for borrowers to repay the loan and many end up in a debt trap.
“Many payday loan borrowers find themselves in a position where they often need to take out additional loans to cover the repayments on existing loans. This cycle can be challenging to break and can lead to long-term financial problems such as poor credit worthiness,” she explained, adding that they should make every effort to preserve their credit worthiness.
Miller implored young adults to taking control of their financial health and future. A good way to start is by cultivating the habit of budgeting consistently and sticking to that budget. She said that by creating a budget, a person will be better able to manage their expenses, avoid overspending, set priorities, and work towards achieving their financial goals. This should also provide a healthier perspective on debt and debt management.
“Budgeting allows you to track your expenses and identify areas where you can cut costs. This can lead to increased savings, reduced waste, and a more efficient use of your resources,” she said.
She further added that a well-structured budget must include savings, plus provision for an emergency fund, to provide a financial safety net. This will prevent one taking on debt to take care of unexpected expenses, such as medical bills, car repairs, or to cover living expenses in the event of a job loss.
Miller informed that by being intentional and discipline about saving, making it a non-negotiable part of one’s budget, one is setting a solid foundation for not only preventing or managing debt, but also accumulating wealth. Set aside a portion for saving before you start spending on other expenses, she recommended.
“One of the easiest ways to accomplish this is to set up automatic transfers to your savings or investment accounts. This ensures that you consistently save a portion of your income without having to think about it,” she advised.
Another intentional action she recommended was incremental investing in assets rather than overspending on consumables.
“Take advantage of the long-time horizon available to young people and benefit from the dividends this will pay in the long run. Share your financial goals, and even your dreams, with a financial advisor and begin your investment journey. Spend your resources on things of value that will appreciate over time,” she said.
Miller also encouraged persons to improve their financial education, “one of the best investments one can make in oneself is to spend time understanding personal finance, this will ensure that one is better equipped to make wiser financial decisions which includes avoiding unnecessary debt,”.
She said persons can educate themselves about personal finances by seeking information from authoritative sources, financial blogs, watching financial news, books , the Internet and by visiting the JN Foundation’s website at https://www.jnfoundation.com/financial-literacy-project/ to get information on financial literacy.