Why debts are a family matter?
Every year, the credit agency Creditreform publishes the Debtor Atlas Germany. The 2020 edition also takes a worried look at the situation of children. Of the almost 1.7 million people, for example, who use the services of the food banks in Germany, almost a third are children and young people, i.e. a total of around half a million.
Family as a factor of poverty
The risk of poverty for families increases especially when mum or dad is a single parent or when many children live in the household. This shapes both the current and future lives of the children. This is because, according to studies, even in Germany, children’s chances of advancement and income are strongly related to those of their parents. In other words, there is a great danger and likelihood that poverty and being on the dole will be “inherited”.
So what can parents do to avoid getting into debt as a trigger of poverty in the first place, how can debt be avoided and how can one get out of the debt trap – as parents and as a family?
How debts are incurred?
A consumer loan here, an overdraft there, forgotten bills that incur reminder or even collection fees: Ultimately, there are many potential debt traps.
Especially as a family with only a low income, such debts can quickly become mountains of debt that seem to crush everything. As parents, you naturally want to fulfil your children’s bigger, more expensive wishes and delight them with a very special surprise on their birthday or at Christmas. If the income is not sufficient, perhaps the savings book or a small loan can help. Ultimately, however, this money can be lacking precisely when it is needed for bills. If these bills are not paid, the consumer debt is joined by the rent debt.
Emergency debtors and debt pragmatists
In order for parents to better understand how to avoid debt or how to get out of debt, a look at different types of debtors can be informative. The Debtor Atlas Germany names two interesting groups here:
Emergency debtors: They really only get into debt when there is no other way.
Debt pragmatists: They use debt to finance “temporary” desires of consumption and life. Unfortunately, this pragmatism leads many of them into over-indebtedness with a time lag.
When it comes to avoiding debt, it goes without saying that parents with low incomes should not belong to the second group or should quickly cancel their “membership”. After all, it is still in your own hands to avoid getting into debt in the first place, at least not in order to fulfil consumption wishes that can possibly be postponed.
If you belong to the first group, it is better to contact one of the more than 1,400 debt and insolvency counselling centres in Germany sooner rather than later. These are run by churches, municipalities and welfare associations. The counselling is always free of charge.
Talking to children about cutting back and deferring consumption
Especially when money is tight and debts are threatening or present, it is important as a family that everyone is brought on board. In this way, everyone, including the children, can help to avoid debts or to reduce them:
- Show your children at least roughly how things look financially: What is the income, what are the essential expenses and what financial bottlenecks might be looming?
- Explain to your children what debts are and when and why they can become dangerous. What happens when you can no longer pay rent, electricity and food?
- Ask your children for their ideas: How and where can we save money as a family?
- Make it clear to your children that giving up consumption or putting it off is also a form of saving.
- Talk to your children about their pocket money: Can you still afford it? Is there a possibility of compromise, i.e. less pocket money or taking a break?
- Show your children alternatives to buying things. Browse the free classifieds together or visit (virtual) swap meets. Craft things that you would otherwise buy. Spruce up second-hand things. Go shopping with your child on a limited budget.
- Be a role model and postpone purchases that can wait. Weigh up what exactly you need now as a family and what you can do without.
- Give your children hope: doing without may be hard now, but better times will come again.
Debts should not be a taboo subject, especially in families, but should be addressed openly and any debt problem tackled together. And finally, parents should never forget: The best protection against debt and over-indebtedness lies in a certain caution in spending, in restraint in consumption and also in a healthy willingness to save.
Links worth reading
Addresses of debt counselling centres throughout Germany can be found here
Click here for the Debtor Atlas Germany 2020
The Fintune Research team provides you relevant information on financial literacy for children. Learning about money at an early age helps to train reasonable money habits and avoid future debt traps.