Us: “Why do you think you need a credit card at age 17?”
Alison: “Because Ashley’s parents just got her one so she could fuel up her car and not worry about having to carry a lot of cash.”
That simple statement opened the door to talk about credit cards and who should be paying for the gas. We had a lengthy conversation about money, spending and financial responsibility.
In the end, we decided that a credit card was not in her (or our) best interest at the moment. Instead, setting up her own checking account with a debit card seemed a more appropriate solution.
It was one of the best decisions we ever made as parents.
Alison checked around and found a bank that would let her open an account in her name only, so she could operate it independent of us. The debit card prevented her from spending more money than she had in the account, though a couple of times she experienced the pain of overdraft fines. She quickly learned to monitor her balance to avoid that unnecessary expense in the future.
Using a debit card was the perfect introduction to money management. She learned to live within her means. She couldn’t buy something on impulse unless she was sure she had the money on hand to pay for it.
When she left for college, Alison still had that bank account and debit card system. She didn’t apply for her first credit card until her second year, when she had regular income from a part-time job. She faithfully paid off the balance each month to avoid paying interest.
I remember her telling us that she chose to keep a $500 limit, even when the credit card company offered to let her increase it to $1,500. She didn’t want to be tempted to put charges on the card that she couldn’t pay on the due date. We were very proud of her and affirmed her wise decision.
Contrast this with parents who give their kids their own credit card in high school or college. If Mom and Dad always pick up the tab, the young person doesn’t make the connection between incurring expenses and having to come up with the money to pay the bill.
These actions can have consequences that last a lifetime. If young people don’t learn how to manage money at an early age, they enter adulthood without one of the most important life skills they’ll ever need.
A widespread problem
I’ll never forget the parent orientation session my husband Lee and I attended at UVA the summer before Alison began her first year.
One of the professors told us that every fall, the first year students are gathered in a large room. He then described what happens when they’re asked to respond to these three questions.
Raise your hand if your parents have talked with you about SEX. Most hands go up.
Raise your hand if your parents have talked with you about DRINKING AND DRUGS. Again, most hands go up.
Raise your hand if your parents have talked with you about MONEY and MONEY MANAGEMENT. Very few hands go up.
Lee and I had invested far more time over the years talking with Alison about money than the other subjects, so we were surprised that we were in the minority.
All these topics are obviously very important to address with children as they’re growing up.
If you have kids, no matter what age they are, you are the primary person responsible for teaching them how to handle money.
What steps are you taking to help them learn a vital skill they will need every day of their adult life?