Kevin at No Debt Plan asks why more people aren’t worried about teens with debit and credit cards. Well, I’ll have to join him in being concerned about teens with credit cards. But I while I didn’t have a debit card in my early teens I got one in my late teens and did very well with it. In fact, I think it’s a valuable tool.
Kevin’s primary concern is a valid one. He fears that teens are being acculturated with the idea of just swiping for their purchases, not thinking about money as money. I wrote about this during the very nascence of my blog, that the well-oiled machine is threatened when we stop to think about a purchase. And that’s why I’m not sure if credit is as good a learning-tool, because it’s not as immediate.
What Having a Debit Card as a Teen Taught Me
Having a debit card taught me that once you spend the money, it’s gone. Boom.
I know cash is supposed to function that way too, but the truth is that when I take cash out of the bank, unless it’s for something specific, I have a hard time putting it in my mental register as “counting.” It’s already out of the bank and therefore as good as spent. Wrong? Yes, but it’s how I feel. Checks are more permanent, but they have that nervous, waiting period while you want the person to hurry up and cash them.
But debit? Instantly gone. It doesn’t sit in your pocket like cash and it can’t be canceled like a check (though debit transactions can be undone, it’s not as simple as calling the bank and canceling a check #).
Since my banking was online from the moment I got my debit card, I could see every purchase right after it was made and keep track of my account without using a register.
I also knew that I would lose money to fees if I over-spent or broke any of the other rules. And I knew about ATM charges, etc. My parents made sure that I knew and as a teen it really hit home because I wasn’t dealing with a large job or allowance income. I wanted to make it go as far as I could, and that meant not letting fees take away my spending money.
What Teens Still Need to Learn
I agree with Kevin that teens need to learn to think about goals, etc. My solution for this would be for their parents to limit how much is in their checking account at one time. Minors can’t have accounts without their parents’ partnership anyway, and it’s an excellent opportunity for parents to shape their kids’ spending habits.
Will most parents do this? I don’t know. I think I got a pretty good set and I know they did their best to teach me financial responsibility. I also know that I was a good saver and very goal-oriented in my teens, so I can’t speak for everyone.
But I think that giving teens a debit card for their checking account is an excellent way to teach them financial responsibility, even if they have to learn through the school of dumb mistakes at first. Better they learn about overdrafting when they’re 15 and not spending money on their rent, food, and other necessities than when they get older.
Why Credit Is More Dangerous
The immediacy of seeing my bank account balance drop brought home how spending affected the money I had. Credit, on the other hand, is precisely the opposite—it’s spending money you don’t have. There’s no good reason for a teen to use a credit card regularly. Rewards aren’t bad, but they’re not necessary for a teen.
At this stage, it’s better to learn that money spent = money you no longer have. Learning about credit cards is good and getting one with your parents to build a controlled credit history may be valuable. But for day-to-day use, there’s much more potential for spending what you don’t have, accruing interest, and generally messing up your financial situation before you’re even out of the gate.
What about you? Did you have a debit or credit card as a teen? Would you give your kid one?
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I agree with you that Debit cards are tools and not problems. Teenagers have to learn responsibility at some point in their lives, a debit card will help them to do that. Especially now that banks are setting up to where you cannot overdraw your account with an ATM card. When the money is out, it is out and there is nothing you can do about it. Giving the Teen a set allowance in their account will force them to learn money management to make it through the month.
Like many other things, one size does not fit all when deciding this as a parent. I suspect that if I had had a credit card in high school, I would have learned then what I learned later about credit and debt and how much the banks take from you. Maybe it would have been easier to have done it at home vs. when I was in college? If faced with myself as a child, I would have required myself to keep track of my spending in a spreadsheet, along with the finance charges I was accruing. I’m pretty sure that would have firmed up my credit card discipline at any age.
Relating to the controlled building of credit with your child…One of the things that has surprised me in recent years is to learn how dangerous helping your child acquire good credit can be. My husband’s sister was helped by her father in establishing a good credit rating very early. By the time she was a college sophomore she had over 35K in credit available to her and she took full advantage of it. Fast. I don’t know if it was her personality or if my Father-in-law didn’t do a good job of teaching her, but either way, it gave her enough rope that when she maxed out her cards, she really was in trouble.
The new credit laws might be helpful in this area, but I guess my point is that every kid is different and the most important thing to do as a parent is to teach as much as you can and try to evaluate (as objectively as possible) your kid for how they will react to everything.
I used both credit and debit as a teenager. My parents educated me on money from a young age and even before I had a credit card, my Mom would have me write the checks and mail off her credit card payment (always in full) as well as our other bills. My credit card was generally kept in my Mom’s wallet and we went through the want vs. need talk when I asked to use it.
I knew that if I misused the credit card, it would be taken away immediately. My parents were very up front with consequences of actions and always followed through on their word. They were very no-drama and there was either a benefit or consequence to my actions. They also introduced me to the allure of compounding interest early, so I didn’t generally want to blow my money on worthless things.
Parents should focus on teaching their children about all financial instruments available to them and share the family finances. Enable your teens to make the best decisions possible.
I agree that debit cards can be great for learning purposes. I got one when I turned 16 and had my first real job. I overdrew my account quite a few times (due to not keeping an accurate record of how much was in my account) and now not so much. I’m glad I did that when I was young and the stakes weren’t quite as high.
As for credit cards, I think they too could be a useful tool, so long as the parents fully understand how to properly use one and use it to help their child learn the ins and outs of credit. Again, it would be better to learn that paying the minimum balance isn’t a good idea when the balance is just in the hundreds and not the thousands.
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Had a credit card as a teen and think that, under responsible parenting, it can be a useful tool (much like the debit card and your own experience). It all boils down to how involved the parental figures are in the kid’s financial development.
Simply letting a teen have plastic without having “the talk” of the risks can spell disaster.
It can start much earlier though. I played monopoly with my grade-school cousin. The version he had used a credit card and “swiper” instead of banker, and properties where values at minimum $10M. Park Place – $150M? No worries, put it on my credit card!
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I opened my own bank account when I was about 15 and had my own cash card as well. the good thing was there were no fees, but it was great to have control of my own finances and spend/save my own money. I think it’s a good age to learn to start handling more responsibility, including financially.
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