Debt or no debt?

In a commentary published earlier this month on The Straits Times, Lorna Tan, an investor writer and senior correspondent of the bureau wrote a “letter” to her daughter, who had just graduated from tertiary education.

Basically, in the letter, she wanted to provide her daughter with some money tips, or financial literacy, as she takes charge of her own life now that she’s embarking on a different phase.

In her article, she noted 7 points:

  1. Starting out debt free
  2. Pay yourself first
  3. Setting a realistic budget
  4. Watch your spending
  5. A husband is not a financial plan
  6. Investment advice
  7. Adopt a long term view

All are pretty sound advice. I chuckled when I read point 5. It is still pretty valid in today’s world.

Anyways, I shared the article with Dave and we had a small debate on point 1.

Well, apparently, Lorna’s lucky daughter get to start out debt free because her tertiary education was all paid for by her parents, so she has no student loan or whatsoever to speak of.

A pretty privilege position to be in.

And unfortunately, a position which not everyone gets to be in.

On that note, I was telling Dave that I was thinking of setting up an education fund similar to that for Ally, should she wishes to pursue her studies overseas.

Well, the thing is, we have already started to build a portfolio for Ally for that purpose, but I wasn’t quite sure how much we could possibly amass by the time she turns 18. But then the power of compounding is such that, the earlier we start, the more favourable it is.

Dave though, was of the thought that we should not have to wipe out the debt.

Even if we could manage to finance her studies then, she should still pay us back, but most likely interest free. And we could possibly choose to write off a portion of it later when she has demonstrated that she can manage her finances well.

According to Dave, he thinks that debt teaches one to learn how to manage your finances.

Most of us graduated with some form of student debt and the continuous recurring monthly repayments are very real.

Of course, we are not insinuating that if you are saddled with debt, you will be financially literate.

However, that situation does perhaps forces you to manage your finances a bit more differently compared to if you have none.

Local prominent blogger AK, shared in a recent blogpost that his family almost went bankrupt when he was entering his teens and his family suffered financial hardship for many years. Those years left a mark on him, and as such, shaped his desire for financial security.

Of course, each individual’s circumstances are different and there are some who will be saddled with more debt, drowned in the vicious cycle.

But ultimately, it’s up to us to get ourselves out of it.

As for Ally, we hope that she would have gained some level of financial literacy from at least a younger age, and that perhaps, is one of the key knowledge that we as parents, could at least impart to her.

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