Advice for Young People on Avoiding Debt

The best way for young people to avoid debt is not to borrow money!

If the credit crisis has taught us anything, it’s that sooner or later every chicken comes home to roost. If you borrow money from someone, anyone: a bank, your parents, even a loan shark, sooner or later you will have to pay that money back, or be forced to give up whatever it was that you used that money for. All too often young people’s debts are in the form of tuition fees, for education they have already received, and as such there’s nothing for the repo man to take back.

According to this article in we “are facing a long and deep recession that will fundamentally alter the nature of capitalism.” We now live in a world very different from our parents, and whether you’re a student finishing a degree, an entrepreneur financing a start-up, or newlyweds wanting to start a family your fiscal health is going to be seriously affected by any amount of debt you already have or are currently acquiring.

Forget about your credit rating – in the new world order there’s no such thing as “good debt” any more. If Merrill Lynch, Lehman Brothers, Bear Sterns and other behemoths can fall, then so can you, no matter how sound your principles or how much faith others place in your abilities.

Rather than borrowing money, why not try this: EARN money, and then use it to pay for the things you need and want.

It may sound like a radical concept, but people have been quietly doing exactly that and getting along just fine for thousands of years. Because it isn’t as sexy or exciting as repossessing homes or breaking legs, sensible saving and earning doesn’t get a lot of media coverage. The politicians don’t talk about it much either: they want you out there, buying and spending and making it look like their economic stimulus plans are working. The banks too are really only paying lip service to the concept – they would rather loan you money and charge you interest on it than help you save money and earn interest from them.

Avoid going into debt at all costs. While you may or may not have a part-time job, at your age how much you’re making isn’t really the issue – it’s how much you’re spending that is getting you into trouble. Quite simply, if you don’t have the money for something, don’t buy it. You don’t need your own car. You don’t need designer shoes. You don’t need a new ipod (even if your old one bites the dust), and you certainly don’t need another Big Mac.

And as important as everyone is telling you your education is, do you really need to spend the next four years of your life accumulating debt while pursuing a degree in a field with almost no prospects for employment upon graduation? Taking on debt for a degree in law, medicine or engineering might be okay, but borrowing money for a degree in philosophy, fine art or history would be foolish. As noble as scholarly pursuits in the arts and humanities are, there’s simply not enough demand for them, and spending four years of your life only to be equipped with knowledge and skills no employer wants or needs is simply wasting your time.

It’s a new world now, and the boundless opportunities of previous generations are gone. “Idle youth” is a luxury we can’t afford any more. Today’s teens need to start avoiding debt, saving money, and making pragmatic choices about their future, long before the college recruiters come calling, and make sure that whenever they finish their education they do so not with burdensome debts, but a handsome nest egg with which to begin their adult lives.