Bankruptcy, Credit, and Lessons for You and Your Children
If you’ve read this blog before or looked around our website, you won’t be surprised to hear me repeat what we’ve said about bankruptcy many times before. Bankruptcy is a legal tool to allows people to protect their future and keep financial issues from taking over their lives. While many people automatically associate negative thoughts with the word “bankruptcy,” it’s also worth looking at in a positive light as well. It does, after all, provide this important protection for so many people. Far worse would be a country with no bankruptcy law and no effective way to get out of lifetime indebtedness.
But in this post, let me suggest another “silver lining” regarding the bankruptcy process—the lessons you can learn and that you can teach your children about finances, borrowing, and debt. That’s right: Although going through financial hardship isn’t fun, it can lead to some important life lessons.
Have you ever heard it said about someone that, “he (or she) knows the value of a dollar?” It’s a common saying and usually refers to someone who has had to work hard for his or her money or someone who has a “rags to riches” story. The point of the saying is, whatever the case, they don’t take money for granted—they pay attention to their money.
There are many stories about people who have become wealthy only after they have first had a financial hardship. Financial hardships can transform the way people think about money and how carefully they pay attention to it. To be sure, financial difficulties can come from any number of situations and are not always relational to how vigilant one is with their finances; however, someone who has had to watch every penny might just value those extra pennies just a little more.
So whether you’re thinking about filing for bankruptcy, already have, or are just finding out more about the process, let me suggest that there can be a lot of value in going through a difficult financial time. Let’s take a quick look at some of the financial experiences that many have gone through and how they have used those experiences as an opportunity to learn and to pass on wisdom to their children.
For many of us, we were perhaps never given a formal introduction to the concept of borrowing money. Maybe the whole idea first came in the form of a low-limit credit card or a department store card. Or maybe we started borrowing money when we took out student loans and we simply resigned ourselves to the fact that borrowing money is a part of life. Then, as we got more and more comfortable with borrowing, we took out more cards, loans, and borrowed other places.
After going through a cycle of borrowing and trying to repay, many people become more aware of how the process works. If you have children, this is a very valuable lesson you can teach them. You can explain to them how the process works and what the implications are so that the first time they are presented with the idea, they have the facts. Your experience can be a great teacher for them.
Up until recently, lenders like credit card companies didn’t have to clearly lay out the implications of making minimum payments on debts. For those who didn’t know better, they may have assumed that they could simply pay the minimum monthly payment and the debt would be retired in a relatively short matter of time. This is almost never the case with things like credit cards. Oftentimes, even small debts will take years and years to pay off if only the minimum payment is made each time. This is another pearl of wisdom you can pass along to your children. You can teach them that when they do borrow, they will need to pay attention to these number and figures and be prepared to know what to expect before they sign up for anything.
It’s Not “Real Money”
When you’re given a line of credit, it might not feel like real money. It’s really just a number. And then if you make your payments online, an amount is just debited out of your checking account. It might not be tangible to you. Think about creative ways to quantifying money when you talk to your children, or even quantifying the amount of money they will spend in interest. Try explaining that “this is enough money for a new video game…a new bike…or even a new car” (depending on how much money you are talking about). Putting it in real terms might help them think about what the numbers mean and make it more tangible.
Many young people open their first credit card so that they have a backup plan for “unexpected expenses.” Since life is unpredictable, these lines of credit almost always get utilized. By saving up an “emergency fund” instead of utilizing credit cards, you can still be prepared for those unexpected expenses. Encourage your children to start a “rainy day” fund for themselves very early—maybe when they are working just a part time job and still in school. By the time they start their adult lives, they will have a nice little bit saved up that they can rely on as a backup plan rather than opening a credit card for the same purpose.
Finally, it’s important to re-iterate that the reasons for financial hardships are as diverse as the people experiencing them. The above information is not at all to suggest that poor decisions were made by anyone, but just a way of explaining how sometime good lessons can come out of hard times. If you are facing financial problems and need to talk to one of our Milwaukee bankruptcy attorneys to find out what your options are, please don’t hesitate to give us a call today. We’re always here to help!