Asteria Lending Inc. Unit 305 3/F 6762 National Life Insurance Bldg. San Lorenzo, Ayala Ave. Makati City
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Whether you’re based in the Philippines or in other parts of the world, the chances are that the education system doesn’t really provide your children or other young people with a great deal of information about personal finance. Things like interest rates, contracts and overdrafts are rarely covered until much later in life, so if you want to ensure your family are able to cope with the demands of the modern world, it makes sense to discuss the specifics of loans, credit cards and other financial issues.
To a young person with no experience of personal finance, the idea of having a credit card that allows you to withdraw money from an ATM or to make contactless payments whenever you like might seem very appealing. That is until they realise these purchases will all incur an amount of interest and that the money must be paid back over time. Keep explanations simple but try to explain that credit is essentially another way of describing the practice of borrowing money from an organisation such as a bank or loan provider. Unlike a bank account that is used to manage your regular income, credit accounts are there as a means of making purchases that you can’t afford without a little extra help. This is valuable information that some younger people have to find out for themselves after running up significant student debt.
When people take out personal loans or salary loans in the Philippines, they often do so after taking a long time over the decision-making process. Though advertising and marketing may encourage us to be as impulsive as possible, decisions about money should always be something we take seriously. Talking to your children about how to make good financial decisions from an early age is important if you want them to avoid potential financial difficulties in the future. Explain that although not all risk taking is a negative thing, deciding to borrow money from a loan provider or bank is something that must be done after very careful consideration of the consequences. Talk about how to make pros and cons lists, back up plans and also how to ask for advice. This kind of advice can be invaluable to first time borrowers, especially if they find themselves overwhelmed by the range of options available to them.
Though we would all rather this side of life did not exist, unfortunately, it is still a reality in most parts of the developed world. The Philippines is no different and those who live there need to be aware of the problems illegal lenders can create. Explain that lack of legal regulations means that unregistered and unethical lenders can demand extremely unreasonable rates of interest from anybody who engages with them, meaning that they will be liable for paying back way more than the initial amount they borrowed. It may also be a good idea to explain how your children can report illegal activity if they need to. Unregistered or illegal lenders in the Philippines are not given any leeway by the police and they will clamp down hard on anybody who they suspect is involved in this kind of operation. Providing your young people understand this, they should be able to avoid any problems caused by interacting with these individuals later in life.
To a young person with no concept of finance, the world of credit can seem very confusing. Be as clear and specific as you can about what different types of borrowing are. Starting with the basics, such as overdrafts, you can explain what different terms actually mean and how they might relate to your young person’s life in the future. For example, large personal loans or specifically designed products such as mortgages are generally something people deal with during their middle adult years, whereas credit cards and other forms of borrowing can be used at practically any age. The key is to explain the differences between each type of lending so there is confusion. Talking about how overdrafts act as a “buffer” for many people and explaining that credit cards and personal loans are usually there to cover larger purchases may be a good strategy.
Though in reality, most people will need to borrow from time to time, cultivating good saving habits is something that benefits everybody. Talking to your children about saving at the earliest age possible is highly recommended. You could even open a savings account for them and encourage them to make regular contributions whenever they can afford to. Parents who talk to their young people about saving generally notice their offspring have a more mature and sensible approach to money than those who don’t.
This can be something that takes a while for younger people to understand, especially if they are very new to the concept of credit, however, it is also something that will serve them well in the future. Explain the key differences between personal loans and salary loans, perhaps by using examples of loans you have taken out yourself in the past. Discussing the difference in interest and APR as well as the duration of time it takes to clear different types of short- and medium-term borrowing is highly recommended. This means your young people will be able to spot good deals and identify bad ones far more effectively than those whose parents did not discuss finance with them.
Discussing personal finance with young people isn’t an easy thing to do, but with a little forward planning and perseverance, it can be one of the most beneficial conversations you can have. Even if you find yourself repeating information or having to rephrase things in order to allow your children to understand, discussing personal finance is always a better alternative than allowing your kids to learn about debt first hand, without any prior knowledge.