Thursday, March 24, 2016

Teach Kids Cash Is King In An Emergency

Today’s fantastic family finance article is:

Emergency Cash Jar

How does your teen handle those inevitable financial emergencies?

That parking ticket. That stolen bike (that wasn’t locked). That iPhone that went through the wash (hint: try stuffing it in a bag of rice first).

Does your teen:

  1. Pay for it out of savings?
  2. Get a loan from the Bank of Mom/Dad at an insanely high interest rate?
  3. Let you pick up the tab? Hakuna matata!

Gold star for option 1. Your teen has learned the importance of maintaining an emergency fund in liquid assets. Double gold star if your teen actually has a separate stash of a hundred dollars or more that is explicitly set aside as an emergency fund. That’s a fantastic habit to learn early. Why not start as a teen? Make it a family rule.

Silver star for option 2. Better for your teen to learn now that a loan is a very expensive and painful way to cover everyday emergencies. If not, your teen might become one of the many young adults who scrambles to cover life’s emergencies with high interest debt — from credit cards to payday loans. What seems like “no big deal” at first quickly snowballs into financial catastrophe. As the saying goes: “You can run into debt, but you have to crawl out of it.” Best to learn that brutal fact early.

Rotten tomatoes for option 3. You know why, so no sense belaboring it.

As today’s article points out, 40% of the households in the U.S. are “liquid asset poor.” Translation: their lack of a cash savings cushion makes it likely they’ll have to turn to high interest debt when that next emergency hits. Teach your teen how to be part of the 60% instead.

Teens already know “stuff” happens. Teach them how to deal with it. In cash.

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