Life Skills
Teens (Ages 12-15)
15 min
Good Debt vs. Bad Debt
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1
The Hook
Imagine buying something for 30,000 units of your currency, and the very next day it's only worth 24,000. This happens all the time with new cars. It’s a perfect example of how not all debt is created equal. Some borrowing can make you wealthier, while other kinds just make you poorer, faster.
2
The Real Talk
Most people think all debt is bad. That's not quite right. It's more useful to think of debt in two categories: good debt and bad debt.Good debt is money you borrow to buy something that will likely increase your wealth or your ability to earn money in the future. Think of it as an investment in yourself.Examples include a loan for college or trade school, or a loan to start a small business. According to researchers, people with a post-high school credential earn, on average, almost 50% more over their lifetime.Bad debt is money you borrow for things that lose value or are consumed immediately. This kind of debt doesn't help you build wealth.Examples include using a credit card for clothes you can't afford, or taking out a big loan for a fancy car. A new car can lose about 20% of its valu...
3
The Story
Kwame’s mom got a new job, but it was too far to take the bus. His family needed a car. They looked at two options. One was a reliable, affordable used car that would get his mom to work safely. The other was a brand new luxury car with a huge monthly payment.
His uncle argued for the new car, saying they deserved something nice. But Kwame, who was 15, spoke up. He explained that the used car was 'good debt' because it was a tool to help his mom earn money. The extra cost for the luxury car was 'bad debt' because it didn't help them earn anything more, it just cost them more.
His parents were impressed. They bought the used car. Kwame realized that making a smart choice with debt wasn't about having the fanciest stuff, but about what the debt actually did for your future.
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Beginner
According to the lesson, what is the key question to ask yourself before taking on debt?
A.Will this help me earn more money or buy something that will grow in value?
B.Can I afford the monthly payment?
C.Will this make me happy right now?
D.Do my friends have one of these?
Beginner
Mei wants to borrow money to buy the newest gaming console. According to the 'Growth' vs. 'Wants' toolkit, how would this debt be classified?
A.As a 'Growth' item because it could improve her gaming skills.
B.As a 'Want' because it's for entertainment and loses value over time.
C.As a 'Growth' item because it's a popular electronic device.
D.As a 'Want' only if she doesn't use it every day.
Beginner
Santiago is considering a loan for a trade school program to become an electrician. Based on the lesson, is this likely to be good debt or bad debt?
A.Bad debt, because he has to pay the money back with interest.
B.Bad debt, because all school loans are risky.
C.Good debt, because it's an investment in his future earning ability.
D.Good debt, only if he gets a job immediately after finishing.
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