Good Debt? Bad Debt? How Home Ec Can Answer Which Is WhichAug 31, 2015
The title isn’t meant to lead you on – yes, there is such a thing as ‘good’ debt in the world. At face value, debt can be a frightening concept. It is also, however, a complex one. Taking on debt, whether for yourself or your household, can often be constructive if you have the financial literacy to guide you. Unfortunately, as total Canadian debt has risen to 163.3 per cent of disposable income, more and more Canadians are taking on bad debt.
Debt relief is there when we need it, but all signs point to there also being an inherent need for basic financial literacy. These lessons weren’t always as hard to find as they are today. Once upon a time, in middle school and high school, home economics courses were a requirement. They taught children and teens vital skills like creating a budget, keeping that budget, and taking on responsible debt that they could manage.
On this last point, there are indeed different types of debt. Home economics tells us which ones are good, or lasting, and which ones are bad, or disposable.
What types of debt are good?
Good debt is investment debt that creates value for the consumer. Taking out a student loan can be seen as a good type of debt – it is an investment in your own future. A university or college graduate often has more promising, better paying job prospects than a high school graduate would. Home economics courses can teach teenagers this specific lesson at an opportune time – just as they are deciding whether to pay for post-secondary education or not.
Other types of good debt include a mortgage (investing in real estate) or business loan (investing in the future of your company).
What types of debt are bad?
Bad debt is disposable debt that immediately depreciates for the consumer. An obvious form of bad debt is credit card debt, which is debt based on accumulating interest rates. If you allow your credit card bill to go unpaid, you’re forced to pay high interest rates on future payments, which is devaluing your hard-earned dollar.
Another, lesser-known form of bad debt is a vehicle loan. The moment you drive your new car or truck off the lot, it depreciates significantly in value. It’s important to be financially literate and understand what type of loan you’re taking on, how your repayments work within your budget, and the reliability of the car you’re buying.
If your personal finances are suffering from too much bad debt, it’s important to see a debt relief professional in Windsor early in the game. With a listening ear and helpful advice, they can offer you debt relief solutions.
It’s also important to rally in support of mandatory home economics education in schools. The Canadian government is addressing the need for financial literacy by introducing a National Strategy For Financial Literacy. As only 26 per cent of students feel they’re knowledgeable about money and are making good spending decisions, a literacy plan like this one needs to begin in our schools, teaching students the lessons of financial literacy they’ll need as adults. At the right time, this would include teaching young adults the difference between good debt and bad debt.
Ultimately, bringing back mandatory home economics courses can help young adults navigate the complexities of debt and help save them from needing debt relief later in life. It’s a huge advantage to know right from wrong, good from bad, as they step into the real world – especially when it comes to debt.
Do you struggle with the difference between good and bad debt? Join the conversation on social media by using the hashtags #BDOdebtrelief and #LetsTalkDebt.