The Joys of Raising Financially Confident Teens

 

Dear Mary: I just read the letter from 13-year-old Abby about teaching kids financial responsibility.

I did this with my daughter when she was just a little older than Abby. Prior to that, she wanted name brand jeans, clothing, shoes…whatever she thought all of the “cool” kids had.

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She wouldn’t step into a thrift shop or discount store. It was a constant battle until I decided that she would have a clothing/necessity allowance.

I gave her a set amount of money each month to cover those expenses. If there was an event coming up she would need to save ahead to pay for whatever she needed, including her prom gown and all the accessories. 

It worked wonderfully. She learned to sit down and figure out what she really needed and then budget for it.

She began shopping at thrift stores and discount stores to save money. She learned to make long range plans. She still dressed fashionably but did it by stretching her money to buy what she needed. It was a valuable lesson that I wished I’d started earlier! —Margaret, email

Dear Margaret: The longer I live the more convinced I am that the only way to train children to be financially confident in ways that will extend far into their adult years, is to give the ability to make their own independent financial decisions while they are still young—then requiring them to live with the consequences of those decisions, good or bad.

Those lessons, as you may have experienced, can be harder on the parents than the kids because we so want to bail our kids out to make sure they suffer no pain.

Suffering the consequences for the decisions we make is the best way to make sure we don’t repeat those mistakes in the future. I applaud your decision to give our daughter the opportunity and the mandate to manage money while she was still over the safety net of your home.

Dear Mary: I have a question with credit cards and electronic devices. I am not sure what would be best. As a general rule, I completely agree with you about no credit cards for kids. However this generation of modern electronics has me in a quandary.

My daughter (age 14) has earned enough money to purchase her own eReader (I am so looking forward to fewer books cluttering her room!). In order to use the device to download things she must have a credit card on file. She is a responsible young lady and I have no fear she will abide by rules I set. Thanks for your advice on the best way to handle this situation. –Kathline K., email

Dear Kathline: I suggest that you add your daughter to your existing credit card as an “Authorized User.” The company will issue a credit card on your account with her name on it and she will have full access to charge to the account, without any legal responsibility for repaying the credit card balance.

And she benefits in another way: As an authorized user, your good credit history will begin show up in her credit file. Even at her tender age, she will begin to build a good credit record by piggybacking onto your credit history.

Sounds like nothing but good, doesn’t it? There are potential downsides for you the credit account holder and for her, an authorized user.

As an authorized user she could go crazy and charge up the account to the limit, without you knowing. She would have no legal obligation to repay the debt and you would have no recourse to make her.

Her potential downside is that your credit behavior as the account holder could take a dive sending all kinds of negative information to her account.

While these possibilities exist, I would say the chances of things turning sour would be slim to none for you and your daughter. Congratulations for having raised your daughter to be responsible enough to have earned your trust in this way. I wish you both the best.

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15 replies
  1. maggiemae
    maggiemae says:

    Or you can get a prepaid card like Serve with American Express and put her budget on there. It is pretty simple, and while I haven’t used ours in awhile, it had no fees when funded and used in basic ways.

    Reply
      • Hondamom
        Hondamom says:

        I share a USAA credit card with my son, which is used just by him. (My husband and I have our own, which we also pay off each month. ) It works well because I can check online almost immediately to see any purchases anyone has made, and I have the ability to suspend the account if necessary. Never needed to …( I have a very frugal son!!!) Also, USAA provides a no-fee debit card for a checking account, that will actually credit your account for any charges an ATM machine might charge you.

      • Leanna
        Leanna says:

        I have my Visa card with through my
        Credit Union. I signed up for a program that alerts me whenever my credit card is used for a purchase. I receive an email within minutes of swiping my card. That would help Mom keep track of her daughter’s purchases as well as her own. I’ve found it to be a very useful tool.

    • Guest
      Guest says:

      MaggieMae … Obviously, nothing is free, but as prepaid cards go, Serve’s fees seem fair.

      ATMs. There is no fee for the first ATM withdrawal each month. Subsequent withdrawals are $2.00. (Keep in mind that the ATM you use may still charge a fee.)

      Loading the card. There is no fee if you load the card online from a U.S. checking account. If you load the card with a credit card, the fee is 2.9% of the load amount plus $0.30 per transaction.

      Reply
  2. Beck
    Beck says:

    When you say your credit history begins to show up in her daughters by letting her be an authorized user do you mean they report it to her credit file? I was told when I put my daughter on my card as an authorized user she is not responsible for it only I am and it would only go on my credit file/score. Unless laws have changed you can only report someone’s information to the credit bureaus if they are actually signed on the contract. An authorized user does not need to sign a contract therefore is not legally bound or reported on. Is this a new law that they have started reporting on people not even signed on the credit card contract?

    Reply
    • Guest
      Guest says:

      On July 31, 2007 Fair Isaac announced that its latest credit-scoring model, dubbed “FICO 08,” would include authorized user accounts when calculating someone’s FICO credit score.

      The company estimates that 50 million consumers are “legitimate” authorized users on someone else’s credit card. Legitimate authorized users, such as spouses, parents and children, have relationships with the primary accountholders and reasons to share access to the accounts.

      FICO 08 was originally designed to ignore authorized user accounts, in an effort to stem “piggybacking” on a stranger’s credit card and artificially inflating one’s score.

      As you may know, FICO is the computer scoring model that most credit scores are based on.

      Remember this has nothing to do with repaying the debt. Only the way that the credit information and behavior on that account is reported. An authorized user is not liable for the debt. But the information is reported to his or her credit history. Some call this practice “piggybacking.”

      Reply
  3. Jeneene Brengelman
    Jeneene Brengelman says:

    The library has ebooks she can borrow free, and there are tons of books online free. Gutenberg is one source. It makes even more sense on a device since she can’t loan them out and probably will delete after reading once.

    Reply
  4. Susan
    Susan says:

    Why not just buy a gift card and apply it to her own account? No credit card needed. Both B&N and Amazon have them. I would think she has a book budget, yes? I think making a minor an authorized user is not a good plan. Especially on Amazon – you buy a whole lot more than books!

    Reply
    • Sherry Clune
      Sherry Clune says:

      My daughter’s Nook requires the credit card. It will automatically charge the gift card FIRST, but you still have to have the credit card on file.

      Reply
  5. Sherry Clune
    Sherry Clune says:

    My daughter has a Nook. I locked with a password on the purchase option. I have the password so she can’t purchase anything–not even a free sample until I’ve okay’ed it and typed in the password.

    Reply
  6. Anonymous
    Anonymous says:

    I’m a 15-year old teen with a Kindle and an Amazon account. It used to be I would ask my Mom to buy something for me, and then pay her back, but my parents, instead of getting me a Credit Card, opened up a shared bank account between me and My Dad, so I have a Debit Card. It works the same way, only I can only spend what is in the account, no more. I check my balance every week, and know what I have that can be used as spending money. I also have a limit as to how far down my savings account balance can go in the way of transferring money over. This has taught me so much more about saving and spending in the modern world than any piggy bank possibly could, or any certain spending allowance my parents give me. I earn what I have, and I know what I can spend, either in reality or online. And, as a bonus, I don’t have to pay it off every month, because I’m not borrowing money from the credit-card companies!

    Reply
  7. NanaKaren
    NanaKaren says:

    My local grocery store gives 2x fuel points on gift cards, sometimes 4x. I buy Amazon gift cards for myself for purchases, especially Kindle books. No credit card and I save on gasoline – win, win!

    Reply
  8. DianaB
    DianaB says:

    While I can appreciate all this banter about downloading books and fees associated with them, etc., Jeneene’s comment below is absolutely on target. Try your library to download books. And I am stunned that someone would not want a kid to actually sit with a printed book in hand and enjoy the beauty of it all. Your goal should never be to take the printed word away from a child or anyone else and have them stare endlessly at some little screen to read a book. Utter nonsense in my world. Kids and adults spend way too much time staring at one type of screen or another all day long either for work, school, online gaming or whatever. Once again, go to the library. That is why they exist.

    Reply
  9. Beth
    Beth says:

    I use a pre-paid debit card when I purchase books on my Nook. I only load it once a month. so when I am out of money on the card I do not purchase any new books. Also with the Nook, you get a free book every Friday.

    Reply

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