U.S. schools aren’t ranked highly against other countries when it comes to standardized tests on math, science, and history. But all that aside, there are other much more important tests kids never take in school–we’re talking life skills here. Many graduates do not understand the basics of adulting period, from not knowing how to cook, to balancing a checkbook or changing a tire.
You might graduate from American high schools knowing a lot of math you probably won’t use, but it’s almost a certainty nobody taught you the difference between a mortgage and a car loan.
That’s why many people believe that teaching financial literacy in American schools is sorely needed. While schools can’t be responsible for teaching everything, many parents are not financially literate themselves, meaning their children won’t be either unless they decide to pursue that on their own.
Millionaire Speaks Up About Financial Knowledge
Daymond John, the owner of urban clothing company FUBU and a panelist on the ABC television show “Shark Tank,” believes that financial literacy is crucial for young people. He recently shared some thoughts about good and bad debt via a Reel posted on his Instagram account.
“This simple concept of good debt should be taught in classrooms to kids. We don’t grow up knowing how money works,” John says.
“Like so many others, I grew up thinking that all debt was bad. So, when I first started making money. I paid off everything until I learned the difference between good debt and bad debt. These little adjustments in how you use the tool of money will make a huge difference in the long run. If you aren’t aware of the difference between good debt and bad debt. Just ask your accountant.”
John seems to be chewing on the concept of teaching kids financial literacy, suggesting he may be considering such a project, if a question he shared with his Twitter followers a few weeks ago is any indication.
The Concept of Good Vs. Bad Debt
Understanding how money works as an adult is a test everyone takes. Many of us don’t have a passing grade, either — most of us either learn from our mistakes or keep making them. Some lucky individuals have parents who understand how money works and pass those lessons on to their children.
One cornerstone of valuable financial knowledge those kids may learn is the difference between good debt and bad debt. Good debt is, simply put, the kind a person can afford to repay. If you use a credit card but pay it off in full every month, that’s a prime example of good debt.
Another form of good debt is a loan used to finance something that is a good investment, such as a home or an education–although both of those can become bad debt if they are not paid off in a responsible manner.
Bad debt is the kind you can’t afford to pay back that don’t result in any valuable investment, like running up credit cards with purchases that cost more than you make. While home loans are considered good debt at first since they are investments, if you are unable to afford the payments, they fall into the category of bad debt.
Another common loan — a car loan — is more a necessary debt than a good or bad one. Most people need a car and can’t afford to pay for one all at once. That means taking out a loan, but it’s important to make sure you can make the payments. You also need to realize that cars generally drop in value and are not, in most cases, an investment.
[Source The Street]