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Why You Should Tell Your Spouse and Your Kids About Their Money – Part 2

February 8, 2009

When I was 22, I decided that I was going to be an adult and handle my own debt (I know, I was a late bloomer). Like many 20-somethings, I knew nothing about credit card debt and how to “handle it”. My debt climbed up every month, but I thought I was doing the right thing by paying the credit card company my minimum payment. When my dad asked me if I had any debt, I always said I was fine. This little power play went on for years!

Finally, when I was about 29 (and still in debt) I decided to visit a financial advisor and have my taxes done by an accountant. I brought all my financial information, which included an investment/stock account that my dad had set up for me when I was in college.

The financial advisor looked at my credit card debt with a 19% interest rate and didn’t mince words: “You’re losing money in two places,” she said. “You’re paying taxes on your stocks every year, and you’re also paying 19% interest on your debt.” Oh.

Now if you’ve been money smart for years, this all sounds like common sense. But to me, it was an epiphany! And that’s why I share this story, because you or a loved one might be in the exact same situation, because they just don’t know all the facts.

Tax Savings
This is why it’s so important to be honest about money matters with your kids and with your parents. If you are in the incredibly fortunate situation where your parents have a stock/savings account set up for you, but you are paying or trying to pay down a large amount of debt, you are in the midst of a losing battle! You are losing money every day.

So, the solution is simple and mandatory, if you ask me:

1. Fess up to your spouse or your parent about the debt you are “in”. They’ll be mad, but it’ll be a lot worse if you continue to hide your mess and breed dishonesty in your family, AND lose money because of it. It’s a mature act to take ownership of your actions and you’ll demonstrate and hopefully take on a new understanding of your finances.

2. Pay off the debt immediately (if possible). If it’s a stock account, you need to select which shares you want to sell so you can cash out. Get some professional guidance, or build more trust with your parent/spouse by asking them to help you in your selections. There’s a lot more to this step than can be explained in this article, so make sure you get some extra information by surfing the Web, researching stocks, etc.

3. Pay into your stock/IRA account. Here’s where you can demonstrate true financial responsibility. Now, you’re hopefully debt free. Instead of paying a credit card company $100+ a month, you will now “vow” to deposit that money into your investment account or an IRA account. By the end of the year, you’ll have earned money (depending on market performances, of course), instead of losing money. You’re already a step ahead.

I know I was very fortunate to have a cushion account that allowed me to clear out my debt in one shot. And that’s why I think it’s so important to know this information, because if you have the luxury, don’t screw it up!

And if you think I’m accruing more debt today, think again. Watching a nest egg like that get depleted because of my silly spending habits was a wake-up call like no other.

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