ICFE eNEWS #17-20 - May 31st 2017
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I have been given the honor many times of addressing graduating seniors
who soon will exit the sheltered walls of home and school to enter the
real world before them. I want to tell them something that will really
make a practical difference in the way they think about money and credit
over the next few years.
I have often shared these three simple principles, which if grasped, will determine their practice in a myriad of specific situations they will soon encounter.
I call these "My Three Most Important Financial Tips For Graduates."
1. Accessibility is not affordability. In the next couple of years, graduating seniors will have access to more credit than they can afford to repay. They desperately need to understand that "because we have access to buy something, does not mean we can afford to buy it!"
I remember the faces of hundreds of people who told me, "But why would they let me buy that car/house unless they knew I could pay for it?"
Most people, as will these graduates, tend to look to the salesman/lender to advise them what they can afford and reason, "After all, they know more about finances than I do."
High credit scores do not, in themselves, reveal whether people can actually afford to buy what they are looking to buy. The credit scores primarily show that the person pays his bills on time. Unfortunately, this is frequently done by using credit to pay on credit.
Graduates need to determine what they can afford to buy before they go shopping, not leave it up to the salesman to tell them.
2. Wants are not needs. If we received a surprise gift in the mail tomorrow of $1000, most of us would immediately make a list of the things we need to buy with that gift.
Isn't it interesting that five minutes before we knew about the $1000 gift, those items on our list of needs were just "wants?"
The truth of the matter is that once we have access to actually have the thing we want, we tend to see it as a need and no longer as a want.
The best defense I know against seeing want as needs is a keen appreciation for the things I presently have. Being grateful for what I have keeps me from wanting what I don't have. It also keeps me from cultivating an entitlement attitude that thinks I deserve to have more.
There is no way to express how important an attitude of gratitude is. It affects every area of our lives every day, including finances.
3. Credit cards are not money. Credit cards are as convenient as using cash, so it seems like we are spending money when we use them. In reality, we are borrowing money.
A credit card transaction is very similar to that of taking out a loan at a bank, and like a loan, the money we "borrow" must be repaid.
This fact would be much easier for us to realize if we actually went to the bank, filled out a loan application, and used the money to purchase our items. Credit cards eliminate those steps, but nonetheless, leave us owing money and creating debt just like a bank loan would.
If I can somehow convey this truth to a graduating senior, it will transform the way he looks at credit cards when he uses them. He will realize he is borrowing money instead of spending money.
There are other things I wish I could impart into the minds of these young people who are graduating because I know that the perspectives they have will determine the practices they follow.
I will be successful (and so will they) if they can grasp any one of these three simple truths: (1) access does not determine affordability, (2) wants are not needs, and (3) credit cards borrow money, not spend money.
© Jim Garnett, The Debt Doctor
AskMrG Consulting, LLC
2216 SW 35th Street
Ankeny, IA 50023
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