{"id":308,"date":"2012-05-31T10:05:24","date_gmt":"2012-05-31T14:05:24","guid":{"rendered":"https:\/\/www.cashflownavigator.com\/blog\/?p=308"},"modified":"2013-07-02T20:51:11","modified_gmt":"2013-07-03T00:51:11","slug":"ideas-to-help-our-youth-get-a-strong-financial-head-start-part-1-outrun-the-debt-or-don%e2%80%99t-be-a-pickle","status":"publish","type":"post","link":"https:\/\/www.cashflownavigator.com\/blog\/2012\/05\/ideas-to-help-our-youth-get-a-strong-financial-head-start-part-1-outrun-the-debt-or-don%e2%80%99t-be-a-pickle\/","title":{"rendered":"Getting Ahead Early, part 1: Outrun the Debt (or Don\u2019t Be In A Pickle!)"},"content":{"rendered":"

\"\"<\/a>In an earlier article I quoted James Taylor, but since the topic here is youth \u00a0let\u2019s borrow a line from James\u2019s younger brother Livingston:\u00a0 \u201cI could barely hobble when I needed to run.\u201d\u00a0 What’s the connection?\u00a0 Well, when it comes to their finances, hobbling is what most of our children find themselves doing as they enter adulthood, mostly due to high levels of debt.\u00a0 But it doesn\u2019t have to be that way.\u00a0 It\u2019s still possible for them to move through the dangerous Debt Accumulation stage of the Financial Life Cycle quickly \u2013 if they run a smarter<\/em> race.
\n[audio:10ImInAPickle.mp3]
\nMore temptations, more debt<\/strong><\/p>\n

Young adults today are entering a challenging work environment. \u00a0In addition to living in a world with less job (and therefore less income) security, they also face new temptations to spend carelessly. \u00a0If mishandled, these financial challenges could set them back for years at a critical time when they should instead be moving ahead.<\/p>\n

One temptation is plastic.\u00a0 Plastic payments (credit and debit cards) now account for 53% of consumer purchases compared to 43% in 1999 (1), and they are increasingly accepted and used for even incidental purchases under $10. \u00a0\u00a0Usage rates are highest among young people. The danger of course is that plastic is painless\u2026until the bill comes due. \u00a0Letting credit card debt accumulate at an early age is an accident waiting to happen.<\/p>\n

For our children, the American Dream of doing a little better than <\/strong><\/p>\n

their parents is still within reach – if they learn to manage their<\/strong><\/p>\n

\u00a0finances smarter<\/em>.\u00a0 That starts with getting ahead of debt quickly.<\/strong><\/p>\n

In addition to credit card debt, there is student loan debt.\u00a0 College seniors who have taken out loans to fund their college education now owe a record-high average of $25,250 at graduation (2).<\/p>\n

Then there is also the temptation of making their first car a new one.\u00a0 With it comes a debt in the form of a monthly loan or lease payment.\u00a0 And the debt burden grows.<\/p>\n

So, debt is the danger\u2026specifically, debt accumulation.\u00a0 As explained in our e-booklet, Wealth is Good, Cash Flow is Better<\/strong>, Debt Accumulation is the first stage in the Financial Life Cycle.\u00a0 It is defined as when your total debts (liabilities) are greater than your total assets, which means you have negative net worth.\u00a0 You want to escape this stage as quickly as possible and move on to the Asset Accumulation stage, and then graduate to Debt Reduction.\u00a0 The more quickly you move through these<\/p>\n

\"\"<\/a><\/p>\n

early stages of the financial life cycle, the faster you can reach the final stage, financial independence.<\/p>\n

So what strategy should young people follow to outrun debt and move into positive territory in the Financial Life Cycle?<\/p>\n

Minimize then Prioritize<\/strong><\/p>\n

The best way to outrun debt is to not join the race in the first place.\u00a0 That is, make every effort to minimize borrowing. \u00a0This requires a certain mindset.\u00a0 It\u2019s a mindset exemplified by our parents and grandparents \u2013 Americans who lived through The Depression and World War II.\u00a0 The shared experience of that generation conditioned them to sacrifice, postpone purchases, and pay with cash rather than credit.\u00a0 So the best first step is to think like a member of The Greatest Generation and minimize debt whenever possible.<\/p>\n

Of course, debt can\u2019t always be avoided. \u00a0In some cases there might not be any alternative than to borrow for an important investment.\u00a0 A student loan is a good example. \u00a0For debts already incurred, the focus (dare I say, the obsession<\/em>) should be to pay them off as quickly as possible!\u00a0 Start by prioritizing them and then pay off one at a time.\u00a0 Unpaid credit card balances are always a good place to start, given their high APRs and long repayment terms (often 15 years, which means very little of your minimum payment goes towards reducing principal).<\/p>\n

Once the first debt is paid off, monthly cash flow that was previously committed to that debt is now freed up.\u00a0 This newfound cash can be used to pay off the second debt on the priority list, perhaps an auto loan.\u00a0 When that\u2019s paid off, even more cash flow becomes available to pay off debt number three, maybe a student loan.<\/p>\n

The key is to attack the debts one at a time.\u00a0 For each one, establish a payoff deadline and then commit to a specific monthly savings amount to achieve it. \u00a0Coincidentally, we\u2019ve established a tool \u2013 the 8020 Worksheet\u2122 — to help not just young people but ALL people do just that. (We\u2019ve now reached the shameless self-promotion part of the article.)<\/p>\n

But regardless of the approach, the overall goal is to escape the Debt Accumulation stage quickly. Unfortunately, a growing number of people classified as young adults not too long ago have failed to do so and are now older adults still stuck with heavy debt burdens.\u00a0 Unpaid credit card debt is often the culprit, but a surprisingly high number haven\u2019t been able to get ahead of education debt.\u00a0 Over 37 million Americans now have outstanding student loans, owing in excess of $870 billion \u2013 that\u2019s more than all the credit card debt in this country ($693 billion) and all of our auto debt ($730 billion). (3)\u00a0 After many years, millions just haven\u2019t been able to outrun that debt.\u00a0 As a result, their prospects for achieving financial independence anytime soon are fading.<\/p>\n

The title of the Livingston Taylor song referenced above is, \u201cI\u2019m In a Pickle (I Ain\u2019t Got a Nickel).\u201d The last thing we want for our \"\"<\/a>children and the next generation of Americans is to fall behind in the race to pay down debt.\u00a0 Accordingly, our advice and the challenge we make to young adults is: Don\u2019t be in a pickle, outrun the debt!<\/p>\n

 <\/p>\n

 <\/p>\n

 <\/p>\n

(1)\u00a0\u00a0 American Bankers Association and Dove Consulting credit card usage survey, 2011<\/p>\n

(2)\u00a0\u00a0 Student Debt Project report by the Institute for College Access & Success, 2011<\/p>\n

(3)\u00a0\u00a0 \u201cGrading Student Loans\u201d post by scholars at the New York Fed, March 2012<\/p>\n","protected":false},"excerpt":{"rendered":"

In an earlier article I quoted James Taylor, but since the topic here is youth \u00a0let\u2019s borrow a line from James\u2019s younger brother Livingston:\u00a0 \u201cI could barely hobble when I needed to run.\u201d\u00a0 What’s the connection?\u00a0 Well, when it comes to their finances, hobbling is what most of our children find themselves doing as they […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[18,20,17],"tags":[24,92,53,118,40,30,117,25,23,29,91,28,48],"class_list":["post-308","post","type-post","status-publish","format-standard","hentry","category-debt-accumulation","category-debt-reduction","category-financial-independence","tag-cash-flow-2","tag-cash-flow-navigator","tag-cashflownavigator","tag-credit","tag-debt","tag-debt-accumulation-2","tag-finances","tag-financial-independence-2","tag-financial-life-cycle-2","tag-income","tag-keith-whelan","tag-liabilities-2","tag-wealth-2"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/posts\/308","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/comments?post=308"}],"version-history":[{"count":13,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/posts\/308\/revisions"}],"predecessor-version":[{"id":329,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/posts\/308\/revisions\/329"}],"wp:attachment":[{"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/media?parent=308"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/categories?post=308"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.cashflownavigator.com\/blog\/wp-json\/wp\/v2\/tags?post=308"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}