There are two types of debt: smart debt and dumb debt. Smart debt is when you borrow for something which generally goes up in value and dumb debt is when you borrow for something which goes down in value.
Many advertisements and brochures that arrive in the mail encourage taking on
dumb debt by offering credit. Advertisers use your emotions to convey that when you get that new stereo or go on a pay-later holiday, you will feel great and you won't have a care in the world.
However, nothing could be further from the truth. Debt can cause worry and health problems, especially when unexpected "life" events happen such as illness or job loss. Having debt can make you become a modern-day slave - a slave to your lender.
Consumer debt should be communicated in the following way: When you take it on you will feel on a high, it will feel like you are soaking in a hot pool. Then you realise the pool that felt so great is starting to turn into a swamp. Unless you take drastic action you will be stuck there.
Debt also seems to have the ability to crawl from one generation to the next. A conscious decision needs to be made to stay away from dumb debt and not be tempted by enticing pay-later advertising.
During my times of counselling, life coaching and budget advice I have heard many heart-breaking stories of how people in all socio-economic brackets have become a slave to their lender. They have been sucked into taking on dumb debt and find themselves unable to make payments or put food on the table.
Budget advice is the ambulance at the bottom of the cliff - it's great and needed. But it's much better for everyone to become financially intelligent so you don't need the ambulance in the first place. Set a good example for your children and avoid dumb debt.
Sylvia Bowden is the author of the book Parents: How to Stop Your Kids From Going Broke!, written to help parents teach their children money and life skills. Her book is available from her website www.silbo.co.nz and some Paper Plus stores.
