Over the past four years, debt has become a hot topic in mainstream America. The U.S. government has borrowed over $2.5 trillion since the implosion of the Subprime Mortgage Crisis. This massive accumulation of debt by the federal government is not an isolated incident; unfortunately, the United States has a culture of indebtedness. Young people in America are expected, and even taught, that debt is a way of life.

Typical American youth are encouraged to go to college and/or get credit cards and incur huge debts. According to a report from the Institute for College Access & Success’s Project on Student Debt, the average college loan for students who graduated in 2011 was a staggering $25,000. During college young people are bombarded with credit card offers all over campus as credit card companies set up booths to lure in young consumers. The result is that the average undergraduate student carries $3,173 in credit card debt, according to Sallie Mae-a college financing company.

Upon graduation, students are then encouraged to buy a car on a loan, and just a few years later to take out a mortgage for a house. By the time the average American reaches the age of 30, it is typical to be carrying college loans, credit card debt, car loans, and a mortgage.

This debt trap is incredibly expensive, which is why many people end up trying to find debt relief. The amount of interest paid out to lenders is substantial. The best way to change this is to educate our youth. The reason that most young Americans fall into such a deep debt trap is because they are unaware of the negative consequences of debt. They simply see debt accumulation as a standard way of life. Unfortunately, many parents show their children very little about credit. Therefore, the way to steer a child in the right direction is to teach him or her real-life money management lessons. While the exact method that your family uses will depend on many factors, here are some tips.

Budgeting and Making Payments

It is very important to learn the valuable tool of budgeting and making payments. Start by coaching your children about cash as soon as they are able to count coins. As they get older, have them preserve money every week towards buying something. This instills the fundamentals of financial savings from an early age. Start to develop a budget for your child, start by listing the expenses the child wants and which the child could pay with an allowance every month. As time passes, become more advanced- have him or her section their cash into several “accounts.” Have them put aside a part of their cash for long lasting financial savings, temporary financial savings, and immediate cash. Later on, use this basic budget to determine a minimum payment and an interest-only payment and write out the transaction terms, weekly transaction amounts, rate, and penalty fees for late payments between you. If the child is unable to make his or her payments, teach them how to negotiate reducing the minimum payments on the debt. You may call your credit card company and ask if you can have your interest rate reduced with a lower rate as an example on how to do it.

Lending

When the child gets older, discuss the importance of having good credit. Call your local community bank and ask the loan officer if he or she would take 20 minutes to meet with you and your child to discuss how a person applies and is approved or rejected for an auto loan, mortgage, or line of credit. This will show your child the real-life determinations of good credit. Make sure the loan officer walks through varying repayment plans, based on good credit and bad credit- so that your child sees the power of compound interest when it works against a person because of bad interest rates coming from bad credit. Explaining these principles is essential and offers an example of how a bank loan works.

After high school is the time to get an actual credit card. Getting a starter card and cosigning it with your child is a good way to establish a history of credit while discovering credit in a supervised environment. By cosigning, you may have all of their purchases analyzed. Use these years to show your child about more advanced personal finance principles such as credit card consolidation and cash-out refinancing.

By teaching about, and letting children experience, the fundamentals of money management firsthand- they will have a better grasp of the core principles of personal finance and be better prepared for their financial upcoming.

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This is a guest post written by Suzan Bekiroglu. Ms. Bekiroglu is a published author, freelance writer and editorial consultant. After receiving a Bachelor of Arts degree from the University of South Florida, she faced the mounting obstacle of paying over $24,000 back in student loan debt. Thus, she became determined to eliminate the debt and become very knowledgeable about money management. She seeks to educate others with tips on managing student loans and other kinds of debt, as well as in general personal finance and money saving tips.