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2. Avoiding Debts and Payday Loans


Following on from our blog about learning budgeting basics, it is equally important for teens and young adults to be educated about debt, in particular the dangers of taking out payday loans. Debt seems to be part of adult life in today’s society. This is evident with the ‘buy now pay later’ offers and the easily accessible credit cards and store cards that are offered in abundance. We also live in a society that promotes instant gratification over the need to save in order to acquire material possessions.

If we can educate young people on how to have basic money management and avoid getting into consumer debt, it would help them in the future when they want to get on the property ladder or make other big financial decisions.

Firstly, it is important to emphasise the importance of saving . Saving up the money to pay for things is a much more satisfying alternative to taking out loans or paying for things on credit cards. It is also important to be aware of the small print including the APR (Annual Percentage Rate) or interest that needs to be paid back on top of the original purchase price.

A very common problem today is that of payday loans. A payday loan is a loan taken out for a relatively small amount of money at a high rate of interest. The borrower agrees to repay the loan either in full or in instalments starting when they receive their next wage. The reality of payday loans is that they target people who have difficulty making ends meet — in other words payday lenders target the most financially vulnerable in our society. The problem with payday loans is that they often make the borrower dependant on them. The likely scenario is that, because the individual is already low on funds and often desperate, the loan is simply extended. This begins a vicious cycle of debt, with extra interest added and accrued each time a loan is extended. Very often the amount of the debt is higher than the amount initially borrowed and the borrower feels trapped.

It is vital that people are aware of how entering into such loans is a precarious situation. Learning how to budget early on and developing the ability to save for emergencies will deter anyone from becoming embroiled in unnecessary and high-interest debt. To prepare young people for the future, financial education would be a valuable addition to the curriculum in schools today.