Maintaining a healthy financial life can be quite challenging for the young and old alike. However, based on a study published in the January 2013 issue of the journal Economic Inquiry, younger people are not only taking on comparatively more credit card debt than their elders, but they are also paying it off at a slower pace.
The study shows that the younger generation’s payoff rate of their debt is approximately “24 percentage points lower than their parents’” and roughly 77 percentage points lower than their grandparents’ rate.
Lucia Dunn, co-author of the study and professor of economics at Ohio State University, cited several reasons for the results, among them changes in interest rates, more readily available credit and less stigma attached to having credit card debt.
According to Dunn, Americans — young and old — should be concerned about the research results, stating that if they continue to consistently come out with similar findings, America may have a financial crisis in the future, particularly among elderly people who cannot pay off their credit card debt.
This is why, even at a young age, one should learn how to be financially savvy.
Why monitor your credit
If you want to have a healthy financial life, it may be best to know how to make and stick to a budget; maximize your cash flow and minimize your expenses whenever possible; set aside part of your income for savings and investments; and monitor your credit — among other things.
The latter may actually be one of the most important action steps you need to take to be considered financially healthy.
If you don’t monitor your credit properly, a number of things could happen. You may easily incur bad debt, which can in turn give you undesirable interest rates when you take out a student loan, a car loan or a mortgage. You might not be able to lease that apartment or office space that you want. It may even prevent you from getting a good job.
It makes sense then to know the basics of your credit report and related score, the attitudes and actions that could affect that score, and the different services available that help you monitor your credit.
Some people, however, may not take the importance of credit monitoring seriously — a mistake which they may regret later on.
Jane White, author of America, Welcome to the Poorhouse: What You Must Do to Protect Your Financial Future and the Reform We Need, shared her personal experience on the Huffington Post, when she discovered that she had “less-than-stellar credit reports despite having a stellar credit history.”
Upon checking her credit reports after a relative’s application for a credit card had been declined, White found out that her records showed totally false information — she supposedly had a “short credit history” and “high revolving balances.”
White’s experience just goes to show that credit monitoring is truly important.
How to monitor your credit
Jeff Hindenach, in an article on the Huffington Post, suggests checking your credit score regularly. Although you may follow all the guidelines for maintaining good credit, other things may affect your credit score, like your identity being stolen and credit being open in your name.
Checking your scores regularly — Hindenach recommends doing so at least once a year, or a few months before you plan to apply for a loan — may even help prevent credit fraud. If you are able to detect irregularities or errors in your credit report as soon as they appear, you can report them to the relevant agency immediately.
In fact, it may even actually be possible to prevent identity theft with credit monitoring.
When checking your financial statements, look carefully for charges you didn’t make. When going through your credit reports, check if you have accounts listed that you didn’t open yourself — if there are any, you may have become a victim of identity theft.
If you see any inaccurate information or suspicious activity in your reports and statements, have them removed.
You may also want to consider signing up for commercial services that will monitor your credit reports for you. You will have to pay for this, of course, so make sure you understand what services you’re getting beforehand.
Protect your personal information at all times
Whether you choose to monitor your credit with credit monitoring service providers or on your own, you should be aware that while credit monitoring might contribute to identity theft prevention, credit card fraud is just a part of the bigger problem of identity theft.
Credit monitoring may help you discover problems before they worsen but will not completely stop thieves from using your Social Security number or other personal data. This is why you should always be careful with sensitive personal information.
Be financially healthy — count the ways
While avoiding bad debt and monitoring your credit are important for a healthy financial lifestyle, you must also keep in mind other important factors: being able to distinguish between needs and wants; knowing how and where to invest; having the discipline to save and build an emergency fund; and, of course, paying bills on time.
How about you? Do you have any useful tips to share? Please feel free to leave a comment in the comments section. Also, if you have found this post useful, do share it with your friends by clicking on any of the buttons below.
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