As parents, we go through life holding our breaths, gritting our teeth
and wincing now and again during our children’s most formative years. We can
read endless parenting articles…10 Scientific Tips for Raising Your Children, 7
Secrets to a Happy Child, How to Raise Children-A 10-point guide to domestic
bliss….and we can harshly judge ourselves when our children make the kinds of
decisions that we warned them about. Well, this one is simple. Let me tell you about the tale of two men
with very different credit outcomes, much of it based on what they were or were
not taught by their, in both cases, very loving parents.
Thirty-seven year old Mark was a salesman who was single. He’d sell anything he could get his hands on.
Unfortunately he was a salesman who had a hard time staying with one company
for very long. Mark’s parents were
extremely hard working people before retirement and it paid off. They had managed to put enough away to buy a
wonderful cabin in Northern Wisconsin that was their second home in the summer
months. It was a home to which they hoped to one day retire. But they also had
re-refinanced their main home about five years ago to help Mark out of some debt
problems he had gotten himself into and couldn’t handle. Mark had over extended
himself with some very high credit card balances, bought a house that he talked
his Mother into co-signing and promptly lost his job of six months again. So Mark’s Mom and Dad decided that they would
refinance their home, to bail Mark out of his debt mess, once again.
Mark eventually found another sales job but after five months he was
back to his old habits. Instead of paying off his debts and relieving his Mother
from her part in his mortgage, Mark continued to spend everything he had. He put nothing away for an emergency fund. A
friend once asked him what he did with his money and why he didn’t have any
saved, Mark laughed and said, “I spent half my money on booze and women, the
rest I just wasted.” Of course, he found himself, once again, unemployed,
behind on his credit cards and was now being hounded by collection agencies and
law firms threatening to sue.
Instead of finally taking responsibility for his predicament, Mark
criticized “the system” as not being fair to him. Today, he went to his bank
and wanted to see what he could do. His credit reflected a mid score of
485. He was again behind on his mortgage
which not only showed up as owing on his Mother’s credit report but also
spoiled her pristine historic credit record with late payments and a possible
foreclosure looming. Mark has no idea what a credit score even was or what
their purpose was. Further he couldn’t understand why the family banker couldn’t
help him out like his parents have been able to do.
Mark’s parents also went to their banker to determine how they could
get money to help out their son, yet again. Their banker, while intensely
sympathetic to this great couple, was sad at his inability to allow them a new
refinance note. The parents, who were now drawing social security payments for
their retirement and trying to desperately keep their dream cabin, were
concerned that their son was defaulting on a loan his Mother had co-signed. In addition, the banker explained, the
debt/income ratio was way out of whack due to the numerous and increasing loans
they had been taking out to help their son time after time and the added fact
that the Mother had debt from not only one but two mortgages that her credit
report showed she was responsible for. There was no way this couple could
continue to help their son and protect themselves with another loan. When the
banker asked them if they considered selling their beloved asset, their cabin,
he could see the tears in their eyes.
Korey was a 24 year old man who was working while he was attending
school to finish up his bachelors’ degree. Korey’s parents were divorced. When
in high school, he moved in with his Mother and four siblings. Korey’s Mom rented their home until one day
an investor came by and offered a contract for deed to her until she had a
year’s worth of payments and a down payment to purchase their house herself. In
order to obtain a mortgage on her own she understood that she had to have a
stellar credit reputation and know how to save money. She knew that additional
debt would count negatively against her ability to qualify for a mortgage. That
meant there wasn’t extra money for Korey to socialize so, from an early age, Korey
worked at part-time jobs as he was going through high school to help out and
have his own money. He managed to play high level sports, go to school and still
work part-time for equipment and other small necessities. As she did with all
of her children, while Korey attended high school and college, Korey’s Mom
taught Korey how to handle his money and the value of good credit.
Korey witnessed his Mother’s struggles and was encouraged by his Mother
to pull his financial weight to manage his own finances. His Mother taught him
about student loans, personal debt and eventually Korey was able to build his
own credit early on. When it came time for Korey to buy a car, the people at
the local credit union, having worked with his Mother and siblings, was willing
to take a chance on him.
During the summers Korey worked several jobs just to pay his debts off early.
This way, he proved himself to his Mom and his lenders. At the age of
twenty-four, wanting to buy a car from a friend, he applied for a loan and the
loan officer about fell off his chair when his credit score came back at 710 which
was highly unusual for someone his age. The only debts he had were a few
student loans and this car loan. Because of this limited debt, he also had a
substantial savings account to help him through the months he worked fewer
hours while attending school. Korey’s goal is to become debt free so he never
has to make payments again.
According to MYFICO, a credit scoring company, the average credit score
for 18-24 year olds is 638 and the average credit score for 25-34 year olds is
652. Scores typically don’t average above 710 until age 55+ where there has
been more history and greater careful credit decisions with experience.
Experian, another credit scoring expert said in their study that people in the
18-39 year old groups had the greatest number of late/missed payments. However, this does not have to be the norm
and, for people such as Korey and those who learn financial responsibility at
an early age, the trend can be beaten.
As a parent, the moral of this story is a choice between enabling vs
empowering. Neither stands to define who
loves their child more. But, one of these parenting choices clearly serves to
teach the young valuable financial lessons and serves to develop wealth
building far earlier in life so that when it comes to retirement we can rest
easy as parents that our children have a sound and secure future. Debt is a
form of bondage and helplessness. Not exactly what we want for our children or
ourselves for that matter. Wealth
without debt is personal power. Now that is something for which we strive in
our own lives and for our children. Which will you be doing?
