Money Week: Understanding debt – two ways.
17 August 2017 / Published in Your MoneyAs NZ Money Week continues, we discuss this year’s theme of debt through the eyes of tomorrow. We’ve created the ASB Getwise – Debt Escape game, an educational exercise involving 8 teams of six intermediate-aged students from schools across Auckland. Teams were asked to hunt for clues, solve mathematical puzzles and use their best ASB GetWise knowledge to help grandma escape debt in an especially-developed Escapade NZ game.
We encourage kids of this age to think about debt, and about how to plan to pay it back, as well as getting in the habit of saving for things they want to buy. We spoke to a few young people at the escape game about their understanding of debt, and here’s what they had to say :)
"If you run out of money, there’s something there that can help you, but you need to pay it back.”
"Before you ask for money from the bank, you need to have a good reason why you want to borrow.”
"You could borrow money to help pay for the train or bus so you can get to work.”
“It’s important to stay in school and get a good education so you can pay your bills.”
"It’s not good to borrow money for parties or junk food.”
Even looking at the word “debt” can stir up anxiety for many people. While it’s generally understood that we should be in control of debt, it’s good to think about the different types of debt, and how they can affect us. There is debt that drags us down, but there’s also debt that helps us get ahead. Understanding how to approach both is an important step in feeling financially secure and having a positive outlook for your future.
Debt that gets you ahead
- Education has always been associated with success, and can have a positive impact on the ability to earn and gain a meaningful and rewarding career. In this way, education is often seen as a debt that helps give you opportunities.
- Owning your own business could also be seen as a debt that can help you get ahead, and become your own boss. While it’s not always easy, taking out a loan to start a small business can give you the ability to determine your own earning potential, and can be improved by your willingness to work hard.
- Taking on debt in the form of a mortgage to purchase property can also be seen as a helpful debt, as it could lead to a profit in later years as the value of your property increases. Owning a house and renting could also be seen as a debt that can generate cashflow and income.
- Lastly, investment provides another opportunity to generate income and create wealth. The first step towards investing is being in control of debt – you can read about this more in our 4 stages to feeling secure blog post.
Debt that can hold you back
- Cars are expensive, and new cars in particular can cost a lot and lose their value the minute you drive them off the lot. While a vehicle can be an asset for work, and to help you do what you need to do in everyday life – paying high levels of interest on something that loses value so quickly could be a waste if you haven’t considered alternatives.
- Holidays, electronics, going out for dinner and other luxuries are often paid for with borrowed money. These are things we want, rather than things we need and don’t necessarily contribute to our net worth. Borrowing instead of saving can cause us to pay more in added interest – money that could have been used elsewhere.
- Payday loans are notorious for making themselves attractive to your situation, but charging excessively high interest rates (in some cases up to 400%) for the convenience. In most cases, if it’s too good to be true, it’s probably not.
Any kind of debt has risks, but some debts can be more beneficial than others if they help you get ahead. While there are debts that can help you, it’s important to understand how they work and what the realities are.
You can learn more about debt and how it affects you on the sorted.co.nz Money Week website.
About ASB GetWise
The largest youth financial literacy programme in New Zealand, ASB GetWise is delivered free to primary and intermediate students across New Zealand, teaching basic money management skills, including establishing good savings habits at an early age.
The programme aims to help educate New Zealand’s young people to make better financial decisions. To date it has delivered over 28,000 workshop sessions nationwide, with more than 700,000 registered students.
Learn more about ASB Getwise.
