The Last Word on Kids and Cash

My parents told me that I could/should get a credit card when I started college, as long as I paid off the entire balance every month and treated it as a debit card (not spending more than I had in my account). I consistently did this, and was able to benefit from cash back rewards as well as building my credit history throughout my college years. I think this works well, as long as the kid is responsible and disciplined enough to do it. Another great idea that my parents had was this: they would help out with some of our tuition costs as long as we agreed to keep track of our finances in Quicken (or other money management program). This was a great idea because it taught us early on to pay attention to our money and be aware of where it was being spent.

I am an adult in my mid-20s and don’t have children (and don’t plan on any for a while!) but I am always interested in posts on teaching children about money and finance.

As some background: I grew up poor and certainly -never- had allowance at all and we learned early on not to ask for things in the store. I worked hard and while I had plenty of moral support from my mother going through college, I certainly didn’t have any fiscal support and put myself through all of it. I realize I’m in the minority of college educated people in this regard.

Reading this entry, I’m a little shocked at suggestions on raising children include not allowing credit cards until children reach their senior year of college. Excuse me? Don’t traditional students enter college and turn 18 that first year? I’m very surprised that a parent would be able to limit this (or would try to — beyond giving some advice). This seems stifling! Cut the apron strings…

I think that parents should be ultra-resonsible with teaching children about money. The traditional education system does a terrible job and it is more important than ever to have children learning money lessons as soon as possible.
I have a newborn daughter and I am always looking for ideas and suggestions for dealing with kids and money so that I am prepared and have a plan when the time comes to start with allowance, chores, credit, debit etc. As such, I am eager to read ideas/experiences that commentors may have.

“Has anyone had success teaching kids about credit cards earlier?”

Like Anne, I got a joint credit card with my mom before leaving for my freshman year of college. The deal was that I would use the card for pre-approved items, like plane tickets home, and she would pay the bill. I only deviated one time from the arrangement; I bought a pair of boots online for $170…and didn’t tell her. When the bill came, my mother called and gave me such an ass chewing that I have never since (8 years) carried a credit card balance. For the record, I’ve had the boots re-soled twice and continue to wear them on a regular basis.

My parents helped me start a bank account right about when I started getting an allowance, when I was 7 or 8. I actually managed to save a significant amount of money, like $100, which I then had to completely bankrupt when I broke a window on my dad’s car while I was trying to throw a rock through a basketball hoop. I was frustrated with saving for years after that because my brothers had so much more than me after paying for the window incident.

My dad set me up with a credit card when I was 16. It was not a joint credit card that I know of. It had a credit limit of $500. I have never paid less than the full balance in the 12 years since then. I liked having the credit card because I have never been good at carrying cash. I was always digging change out of my car seats to pay for gas. It may not be for everyone, but I had never known anyone to get into credit card debt, and my parents were very good with money. I never even considered charging stuff I couldn’t afford, honestly the thought never crossed my mind. Stuff I couldn’t afford was stuff I couldn’t afford, period. But I think parents know when they have a kid who buys Abercrombie and electronics and whatnot, and so you have to do it on a child by child basis. I was a kid who shopped at yard sales and Goodwill.

My parents took half of all ‘gift’ money from birthday’s/Christmas and put it in a savings account for us, the rest was ours to spend. I think we got a small allowance, mostly to cover lunches, but we were paid for ‘major’ chores – things you might pay others for like mowing the lawn, a full house clean and washing the cars (and we painted the house one summer), but not for the smaller stuff – cleaning our rooms, washing dishes, general picking up. I think that’s a fair way to go.

And I wasn’t allowed a checking account until I had a job and we definitely had the fear of God put in us about bouncing checks. But their approach to credit cards was basically that they would never cosign or put us on their cards (I think this was mostly from a lack of trust/protecting their own credit, but that’s another story). Anyway that left me without any real credit card experience until I was far enough along in college to start getting offers in the mail that I could get in my own name. Needless to say I wasn’t very responsible, though it could have been worst. So in response to the ‘no credit cards until they’re a senior in college,’ I think it is so much better to have some good experience with credit cards when you are are still at home with your parents looking over your shoulder, when it is still a privilege that your parents can quickly yank if you don’t follow good rules.

When I went to college, I also had a joint credit card with my parents. I could use it to buy my airplane tickets home, medical expenses, real emergency type stuff and since I was 3,000 miles away from home, I could not have afforded a ticket home at Christmas otherwise (which would have been an emergency for my mom!).

I remember even calling for permission to use it when I needed some gear for fieldwork that would not be provided for by my the terms of my internship.

It helped me build a good credit history and learn that it wasn’t a free for all.

Now I have three boys and I plan to do the same with them. They hit college in 7 years.

Not one my sons has ever has about getting a prepaid debit or credit card. If they did, the answer would be no.

They do chores now, a fair amount of them, but they do not get paid for doing the regular things around the house. In my opinion, kids have to learn they are part of a family, they don’t exist in a vacuum and everyone has to work together. I’m also not sending three boys out into the world who can’t make a bed, do some laundry or cook and clean up a meal. I am not getting out my wallet every time they do something like take out the trash or scraps to the compost.

But they can earn extra money by going above and beyond the norm…I set a price and when the job is completed, I give them their pay. They feel like they’ve earned it and have more of a feeling of pride with it.

Sharon

The only beef I have in this piece is “… but suggests withholding credit cards until the senior year of college.”
Most people in college turn 18 their freshman year of college. In other words, a legal adult. To me, if someone is still under the control of their parents at that age, then there are larger issues that need to be addressed than just having a credit card or not.
My parents raised me to think for myself and while I’m sure I now make decisions they don’t always agree with, they respect my decisions because they know they raised me to think for myself. While I don’t have kids (yet), I think using finances as a way to teach independent thinking is an even more important lesson than just teaching about money.

I acquired my own credit card in college, when I started receiving offers, after reading that it would be good to build my credit. I was really good with it until after I graduated, when I ran it up to the limit. (Fortunately, the limit was really low, so it was a relatively easy problem to solve.)

I think some sort of joint credit card would have been a better learning experience for me.

As a child we had allowances, and regular chores, but they were separate. My brother and I negotiated the allowance system for the family when we were quite young. At some point in high school, my dad gave me a quarterly clothing allowance, which allowed him to better budget the amount of money I spent on clothes, since I knew I wasn’t allowed to buy any more with his money once I’d spent it all.

We weren’t given a car when we turned 16. A car was made available, but we were required to pay for our own gasoline and pay our parents back for the insurance on that vehicle, which necessitated getting a job. While it seems to have mixed results (my brother had his car confiscated for a while for not paying his insurance), I think it’s a good strategy. Cars are super-expensive.

Although it’s unorthodox, one of the best things my father ever did for me in my financial education happened in my senior year of high school. I was applying for financial aid, and he sat me down with the FAFSA application and his tax return and explained his finances to me. He showed me exactly where his part of the tuition was coming from, and what loans he was choosing to take out and why. He also explained the loans I was taking out, what their terms of repayment looked like, and what my payment schedule would look like. He then did this every year that I was in college. (He paid tuition, room & board for most of school [I paid my own room & board senior year], and I was required to buy my own books.)

Now, it helps that my dad’s pretty knowledgeable about money (he’s a finance guy). But it sure was a huge advantage, I think. It affected how I value my college education, on the one hand, and gave me a clear awareness of budgeting, saving and investments.

I got a credit card when I got my driver’s license. My parents knew I was responsible, and they wanted me to be able to get myself out of trouble – running out of gas, needing to have the car towed (I didn’t drive the most reliable car ever), etc. They got peace of mind, I got to build credit history, and it was really convenient that I wasn’t always asking them for cash for gas.

I think the best way to teach kids about money is to model financial responsibility. I didn’t know the details of my parents’ finances, but I knew that my mother managed their money carefully. It was always clear to me that my parents had a fair amount of money saved, but that it was for important things like college and retirement and emergencies, not for frivolous things. They never seemed to worry at all about the price of things they felt were important – medical care, glasses, braces – but I knew they could afford that lack of worry because they were generally really frugal. It mystified me when my friends with vacation homes and fancy cars weren’t sure how their families were going to pay for college, because my parents modeled a different set of financial priorities.

My mom has never had a credit card, because she was not raised in the US. She just uses checks and cash. Though she never sat me down and told me about the dangers of credit cards, I kind of got the idea from the way she was careful with her money.

I am not that disciplined. I have a debit card and a credit card, that I pay off with money I earn working year-round, a lot of hours during summers and less during the school year. It’s easier to buy things with a card, but I must stress that I use it as a debit card, never approach my limit, and only spend as much as I have in my account. Then again, I’m the type of person who enjoys thrift shops and bargain bins.

Certainly, kids should be set up with savings accounts, and taught about saving from an early age. But they should also be encouraged to get a job and work. It is unrealistic to wait till the last year of college to get a card because people who pull up your credit report will want to see a longer history. It is really easy to get credit in college, perhaps because the companies believe that young adults are less of a risk because their parents will bail them out if they overspend. Since it is so easy, I think you should take advantage. But with limits. Everything’s good in moderation.

As a teenager of 15 i recieved $20AU each week which i thought was substantial and got me though the week with a few treats. My parents tought myself and siblings alot about managing our money and budgeting though let us use our money however we wanted too (within reason). We would get half our age in dollars eg 10 years=$5 and when (and if lol) we made it to 15 we would get $20 no matter how much older we got.

On the subject of credit card pressure it can be very hard to not give in. I moved into my own rental property at 17 and quickly signed up for one. Not to buy a heap of random stuff but just to get by. Paying rent, food, education, transport etc and not budgeting got myself into a hole. With 3 cards and $9000 debt by the time i was 20. Luckely i could see the direction i was goin and have just finished paying them off. 2 years and not alot of treats and doing it tough to pay them off had me learning my lesson.

In my opinion you can teach your children all you can about money. But young people can easily forget about about the importance of budgeting and tend to put this off. Oh i will pay that next week, that way i will have at least a little bit of money for the weekend. Then the stage when the power bill is over due, the car registration is coming up and rent is 2 weeks behind your children are likely to forget all about the down sides of cards and they will be signing those papers before they end up with a bad credit rating and no house.

This is only my opinion and i hope an insight from a young person can be helpful in your discussion

My parents allowed me to get a credit card when I was 16, at the same time I got a checking account. My mom would sit down with me every month when she balanced her checkbook and paid her credit card bill and help me do the same. She really pounded into me that I was only to use my credit card when I actually had the money to pay the bill in the bank already – it was meant for convenience, not for a loan.

When I went off to college, though, things changed a bit. I was paying my own way through school and sometimes I just didn’t have the money I needed to buy books, pay rent and utilities, buy gas and groceries; sometimes I didn’t have the self restraint to not buy clothes or go out with friends. Luckily, my card had a pretty low limit ($500) and I never got any other cards because I was worried about how I would handle them.

Because of the low limit, I was able to pay off what I owed shortly after college (I carried a balance through most of school, but managed to pay it completely off every couple months, just to charge it up again!). Since that time, I’ve gone back to the mantra of it being a tool to make purchases that I can ALREADY afford more convenient. I’ve been out of school for 6+ years and haven’t paid any late fees or finance charges in well over 5.

I think the fact that my parents started me off with a card that they monitored in high school helped me build a solid foundation, even though there were some stumbles along the way. It also was very helpful when I was in school with getting things like a cell phone, or later getting a better rate on my car loan, because I had a credit history for longer than most of my peers and had handled it reasonably well.

I think college students should have a credit card regardless of their age.

And yes, 18 yr olds are legal adults but many of them still look to their parents for financial advice especially during college; if the parent doesn’t suggest a card, many won’t think to get one – or worse, they may fall victim to a credit card company rep promoting a high fee card on campus and may run it up or pay late before realizing what they’ve done. Better for the parents to help get them set up properly with a good card and teach them how to use it before they move off to colelge.

Anyway, cards are necessary to build a credit history so that the student can rent their own apartment later in college or right out of college without the parents having to co-sign the lease. It’s also convenient for costs the parents might otherwise have paid for like a sudden (or scheduled) flight home, a flat tire or other car trouble, or what have you.

Good point, Mick. It certainly bears stating that all financial learning is best done from each kid’s point of view. Everybody (young and old) has drastically different motivations and a collaborative plan is fantastic way to learn.

I think Bodnar (the author of the Kiplinger article) understood this as well; she mentions a few situations with her teenagers where she supported the kids with their own financial decisions.

Also, I’ve appreciated all of the comments about teenagers and VISA cards. When my kids reach that age, I’ll probably closely look into how long it takes to build a meaningful credit rating and work with them to build that before they go out entirely on their own.

“Has anyone had success teaching kids about credit cards earlier?”

My first card came at the age of 16 when I got my driver’s license. It was my parents card but they added my name to it. It was to be used for gasoline and Dad’s piece of mind if I broke down (they were paid back for the gas).

The first card in my name came when I was about 18 (if you don’t count the debit card used as a credit card). Reading this article and blog for the last month or so I’ve been racking my brain as to what specifically was taught to me that instilled good credit card practices but I can’t pinpoint anything. Perhaps it was working my first job at 15 or the many years of putting money into a savings account and/or checking account.

To this day I use my credit card constantly especially with it’s benefit of consumer protection. Add to the fact that I seem physically incapable of keeping track of my expenses unless I can logon to my online bank account and see exactly where I spent my money. This works for me because I always think of the purchase as being immediately taken out of my checking account (essentially I pretend my credit card is a debit card). I never make a purchase I don’t already have the money for and my balance gets paid in full at the end of the month.

I think it really comes down to your child’s personality. I was, and remain, a fairly frugal spender when it comes to myself (although I’m less frugal when it comes to spending on friends and family) and I’ve always been a saver.

My brother on the other hand has NO sense of fiscal responsibility (currently in college) and is learning the unfortunate side effects of that with a little help from my folks.

Hi, my perspective comes from Australia which may be different to the US. Isn’t a good savings history as good for your credit rating as a credit card history? I believe that if you teach frugality and care with money, the instruments used are a side issue. They can change, the principles don’t.
We give our children an allowance equal to their age – half immediately goes to long terms savings account for education etc. Even as babies they got an allowance – all of it went to the savings account. The other half goes into another account. We used cash for a while but the children prefer the account – if I give them any cash I transfer it directly from their account to mine so they see the whole transaction. They get to see the balances of their long term (and short term) savings when we log on and by the time they are old enough for the numbers to mean anything, the balance is large enough for them to be excited about saving.
We expect them to get jobs as teenagers and continue to put 50% away so it will be easy to save 10% when they are on their own. This way we save for their education and teach them good financial principles. They also come away having contributed themselves.
We find because of the limited funds they have at their disposal, our children are quite stingy, which makes me proud! P.S. Birthday money is ALL theirs – its like a bonus.

@Kevin: I’m delighted that you and your wife have such an egalitarian arrangement. Unfortunately, it’s not the norm. Women often work fewer hours and receive lower wages and inferior benefits compared to men. This makes it very easy, even in a supposedly egalitarian environment, to feel that they should somehow make up for their earning deficiencies by doing more household work. However, their shorter hours, lower wages, and inferior benefits are due to systemic inequality, an arrangement that perpetuates the notion of women as homemakers. Likewise, children bring home no money and are therefore often regarded as an excellent source of unpaid household labor, which they are expected to provide in exchange for the privilege of being raised by their parents (as well as the room and board that you mention).

You asked who compensates you; I would say that your employer does. Part of your arrangement with your employer is that you are only required to spend a certain number of hours a day at work, and you are paid wages far in excess of what you need for work-related items, so clearly your employer is expressing an interest in you having time and money to maintain your home. If you put 40 hours a week into office work and 10 hours a week into household work, then your true “hourly wage” is your weekly pay divided by 50. As noted, women’s wages are often lower than those paid to men for equivalent work; that inequality is felt keenly when household labor is factored in, and all the more so if a woman who earns less is expected to work more around the home. In a household less egalitarian than yours, where the husband does 5 hours of housework a week to the wife’s 15 and he earns $52,000 a year to her $41,600 (which is to say, her pay is 80% of his, a not uncommon situation), his hourly wage is $22.22 and hers is $14.54. That’s a very big difference: suddenly her hourly wage is not 80% of his, but 65%.

If children are going to be treated as laborers, they should, like any employee, be permitted to negotiate arrangements where they provide a fair quantity of work that allows them adequate time for their personal lives and are compensated to a commensurate degree. Obviously some of that compensation is in the form of material goods–food, clothing, shelter, educational materials, entertainment–but at least a small percentage of it should be financial. As children get older, they will begin to negotiate those percentages as well as their overall hours and wages. This teaches them to value their labor and time, and to never accept an arrangement where they are expected to give something for nothing.

For more on the topic of women’s uncompensated labor, I recommend the 1998 article “Too many hours–Too little pay: The impact of market and household hours on women’s work lives”, written by a woman and two men and published in The Journal of Economic Issues. Here’s a pertinent excerpt:

“Women suffer in three ways from the current benefit system. First, they do not receive benefits on their unpaid hours of household labor. The result is an institutional bias that makes household labor something akin to agricultural labor. It is a labor system that is outside the normal protective system of modern labor law. For the typical 50-hour week, women work close to 40 percent of their labor time without any benefit system. Second, many jobs held by women are part-time or contingent jobs where only legally required benefits are paid since the short hours do not qualify for the company benefit package, or the contingent status places the worker outside the legal definition of a company employee.

“Third, as women have moved into the labor force, they have entered industries that have not provided benefits at the same level that exists in the private sector as a whole. Table 3 shows the differences between women’s employment shares by private industry (where women comprise almost 47 percent of 1995 private sector employment) and the relative generosity of those industries in average benefit packages.”

And from the conclusions:

“It is clear that women’s labor market opportunities have several institutional disadvantages; women work part of the week (in their homes) for no benefits and the rest of week in industries where the benefit packages are weak. Like the factory worker in the nineteenth century, women in the labor force are assumed to be able to shoulder the burdens created by their labor force participation unaided by societal institutions.

“Perhaps more insidious, however, are utopian schemes of gender equality assumed by some analysts, implying that the dual work lives that women must live every day are nonexistent. Realistically, women’s relief must come from interim solutions that allow them to respond to labor market demands in conjunction with those of their families. Every solution is not necessarily a market solution, but in a market society, it is peculiar to ignore unpaid working hours of socially necessary labor.

“Just as institutional reforms arose to protect industrial laborers, resulting in healthier, more productive factory workers, similar institutions need to be targeted at ameliorating the harshness of the marketplace for women. Unemployment insurance, workman’s compensation, paid vacations, health care insurance, and death/ disability benefits all helped to ameliorate the onus of industrial employment while enhancing the quality of life of the industrial worker’s family.

“Women’s work in the home and in the market must be wholly integrated through a systematic transfer of current burdens to new social institutions. While adding these existing benefits to women’s labor market packages is important, societal recognition of the importance of child rearing and other household labors reflected in women’s benefit packages could lead to a fundamental and lasting improvement in women’s work and family lives.”

You may also be interested in “Home as Work: The First Woman’s Rights Claims concerning Wives’ Household Labor, 1850-1880″, which gives some of the historical background of the issue.

@Karen: Whence the psychoanalysis? I’m generally quite happy and have been even when next to penniless. Right now my net worth is in the negative tens of thousands, and that doesn’t stop me from donating to relief workers in Haiti and the campaign of my preferred presidential candidate, nor does it keep me from greatly enjoying my work, my hobbies, and the company of my family and friends.

I didn’t say children should be taught not to give; I’m a big fan of giving generously and often to those in need and those one loves and causes one supports and random strangers as well. What I think children–and adults–should be wary of is any situation where they are expected to provide a service without recompense that they feel is sufficient. I have never seen any healthy relationship, between people of any age, built on such an unsteady foundation.

As you note, sometimes doing something for the sheer joy of doing it is recompense enough. Sometimes, however, it is not. It’s one thing to volunteer my labor for free, as I might do if a friend is moving house, or if my husband is injured or ill and can’t do his share of the housework. It’s quite another thing to have my friend or my husband assume that my labor is there for the taking, to demand or expect my assistance rather than asking for it. That’s the key nuance here. Volunteering cannot be compelled or expected, only requested and supported.

Even young children are still individual human beings, and they learn very quickly and very deeply from the examples and treatment of their families. Which would you rather your child believe: that there are situations where it’s perfectly acceptable for someone to demand and compel their time and effort and offer them nothing in return, or that their time and labor are precious and should be directed only to causes where they are paid well in money, barter, or satisfaction? If all that you have can be taken away at another’s whim, that leaves no room for generosity.

Interesting topic. Our three year old is like a little Siddhartha, almost completely free of material desires. He has no interest in candy, toys, etc., although he occasionally asks for a pastry when we’re at the bakery–he’s pleased if we say yes and annoyed if we say no but never for more than a few seconds. Only once have we ever been able to bribe him (we gave him gumdrops in exchange for not taking his seatbelt off in an airplane ride with a lot of turbulence that was freaking him out). He enjoys gifts from his grandparents but often offers them to others and is unaffected by never seeing them again. We’ve given him change and he enjoys throwing it around in the street or putting it in containers and taking it out. Even though he seems to get the concept that you can exchange the money stuff for other stuff it doesn’t seem that interesting to a kid unequipped with wants.

Without a material hook, we’ve really been wondering how to teach him about money. Not that I don’t envy him to some extent; even at age three, I was far more covetous.

suggests withholding credit cards until the senior year of college

Wow, I didn’t know so many kids were seniors in college before the age of 18.

I asked my dad for advice about whether it was okay to get a credit card when I was in college. I certainly did not ask his permission.

I agree with most everyone here about the credit card in college. I got my first card with a year left and found out that my credit wasn’t very developed when I needed to get an apartment after graduation. I know credit cards aren’t the only way to get credit, but you need volume and consistency in the short-term in order to be qualified to rent a place at 20 / 21 years old. Paying four years of apartment bills doesn’t get you much when compared to the new rent + utilities.

Granted, I haven’t read all of the replies here yet, but I do have to say that when kids go to college they’re either already 18, or turn 18 at some point during their freshman year. Then the calls/mailings start coming in for credit cards – and the companies prey on these kids not knowint how to handle their money.

I am envious of those who have said they had a joint credit card with their parents, or some other arrangement with their parents to work to build their credit score, but also more importantly to teach them about wise money management choices/decisions.

When I was a freshman in college, I got that call “would you like a credit card etc” and I thought to myself “Okay, but I’ll only use it for emergencies” —hah. Several years later, I’m still trying to pay that and other cards off. If kids could work some arrangement out while still in high school, and continue that arrangement while in college – but alter it slightly to make the college-aged kids more responsible for their own money/spending, that would be of great benefit to those kids. And while 18 is old enough to vote, etc, it’s not always old enough to be making great financial decisions. So if parents are still in the loop of their child’s financial status, it probably wouldn’t be a bad thing. If my parents had known I was getting deeper and deeper into debt, I wouldn’t have gone deeper into debt because their knowledge of it would have made me ashamed enough that I would have dug myself out.

And yes, every kid is different. But if I had learned earlier on about money, and had the opportunity to have some sort of joint account or had my parents more involved, I don’t think I would be as deep in debt as I am know.

But I’m “debt snowballing” my way out. A few more years and I’ll be golden!

I just finished a book called “Drive”. The author, Pink (Can’t recall the first name) discusses what motivates and demotivates people today. His views on children concur with the not paying kids for chores: The carrot (allowance) creates an unnecessary sense of entitlement to tasks that in adulthood will not be compensated. Most children will voluntarily take part in household chores without compensation. Paying kids to do chores then demotivates kids to do these chores voluntarily, since even a single payment as a reward creates the ongoinng expectation of remuneration. Interestingly, unexpected rewards after the completion of a task does not seem to impact long-term motivation.