Money Smart Kids
Teach Kids to Manage Cash Before Credit
Having kids become little debtors-in-training isn't the best way to teach them about credit. Children need to learn how to manage cold hard cash first.
By Janet Bodnar, Editor, Kiplinger's Personal Finance
February 24, 2005
Last week I came down hard against giving teenagers credit cards. Although I'm all for teaching kids to use credit responsibly, having them become little debtors-in-training isn't the way to do it. I firmly believe the best way for kids to learn how to manage credit is to start by managing cash.
That's why I'm also not a fan of prepaid cards. To kids, any kind of plastic simply isn't real money.
To sell the idea of prepaid cards to parents, the creator of one such card told the Washington Post that "you get a higher level of control than if you just gave your daughter $100 and said, 'Go to the mall.'"
But readers of this column know that I would never advise that, either. Parents have even more control if they insist that their children finance mall excursions out of their own earnings or allowance (which I define as a fixed amount of money that kids get at regular intervals to pay for agreed-upon expenses).
I've got nothing against youngsters buying stuff -- as long as they don't hit up their parents for $20 or $100 every time they head out the door.
That's not to say you shouldn't discuss credit with high-school-age kids. But instead of lecturing them, use a quick, interactive example, such as an online calculator to show them how long it can take to pay off a credit-card bill.
Once they've learned to handle cash, teens can start to use plastic in ways that make sense. For example, when they get a part-time job, help them open a checking account with an ATM or debit card so they can deposit, withdraw and spend their own money.
College students don't need credit cards, either. "I had a gasoline card for 'emergencies,'" one young woman confessed, "but my roommate and I always used it to buy food at the gas-station convenience store."
The time for college students to consider applying for credit is shortly before they graduate. Ironically, it's often easier for them to get a major bankcard while they're still in school. By the time they're seniors at least they've had experience managing money on their own for several years.
When I recently drove my college-senior son back to school, we had a long talk about when to use a credit versus a debit card. That's a discussion his 16-year-old brother wouldn't have had the patience for.