The end of summer brings the beginning of school and for me that meant one boy off to college and the other driving himself to school each day.
That means lots of changes going on and lots of opportunities to talk to the kids about money, spending and saving.
Debit Cards
Lesson 1: Get a free account.
Let’s start with the youngest, he’s just got his license, and he has a long ride to school, so he’ll need to fill the tank pretty regularly. This seemed like a perfect opportunity for him to begin to learn about managing a bank account. I opened him a checking/savings account within my family of accounts at my bank. This gave him a free student account. At my bank, this student account is only valid until he’s 18 – but, as I learned, then he can just open a “college student” account.(!) Anyway – free is crucial – none of us need to be paying fees on our bank accounts right now, so shop around if you need to.
Lesson 2: Check in on your student regularly
Now, since he is driving himself to school, which I would be doing if he couldn’t drive, I have agreed to pay for his gas. Our deal is that I will put a certain amount of money into this account and he needs to check his balance regularly – at least when he fills up – and let me know when the balance goes below $50. Then I would move more money into his account.
I used this same methodology with my older son – got him a debit card and told him to let me know if the amount fell below $50. Since his account is part of my family of accounts, I could watch it – and I did. I saw it fall, fall, fall, until it was down to around $13. Then, I waited for him to learn his lesson! I was imagining him pulling up to the gas pump and getting rejected when he put the card in. In my imagination lesson learned – it’s easier to keep an eye on your account than to have to drive home from the gas station and have “the talk” with your mom!
But, that’s not how it happens these days. The bank simply allowed him to overdraw his account and then charged him a fee. Lesson learned anyway, but not the way I wanted. (This is fodder for a different discussion on how the banks have played a part in our culture of free spending, but that’s for another time.)
So, when you’re ready to start your child with a debit card, make sure it’s a team event. Lay down the ground rules and then help keep an eye on it for a bit while you both get used to this new tool.
Credit Cards
With the oldest off to college, I know that he will need to buy books and supplies, even items for his dorm that I forgot. That is just too much pressure to put on a debit card – I don’t like keeping that much cash in a checking account (his Chem book, alone, was $300, and that was before he had to buy all of the other requirements: a lab book, a survival guide, a lab coat [available in S, M, or L!], and goggles). So I’m getting him a credit card now for two reasons: 1. To learn to use the credit card as a tool, not to purchase things he can’t afford, and, 2. To start building his credit history.
As most of you know, kids under 21 are not allowed to get credit cards solely in their name, so you will have to co-sign. This is a good way for you to also keep watch on the balance and make sure that it is being used as you intended. The bank where we have our checking accounts was only too happy to give him a card, so start there when you’re ready. You don’t need to worry about interest rates yet, because you and your child will pay this off every month. Just make sure there is no annual fee (so few cards charge this anymore).
Lesson 1: This is all new to them
First he and I had the big discussion about the difference between a credit and a debit card, and how sometimes you can use the debit card as a credit card – especially at the gas station. This can be a bit confusing for an 18 year old, who really only half listens, so you might want to have the conversation more than once!
Lesson 2: Set some rules and stick to them
Then, there was a second discussion about ground rules – when and what he was to use the credit card for, and what would be an acceptable purchase. This is the conversation that will put your child on the path to proper spending habits, so you may want to do this more than once also! In our household he is to use the card for books and supplies and emergencies. You may choose something similar or may add items like restaurants and entertainment, but put a specific limit on it so that your child can start to learn that you only put on the card what you can pay for at the end of the month. This is the crucial lesson of credit cards.
If I had to distill down what I’ve learned so far here, it’s that this is a team effort. the more I can work with my kids now to instill my financial values, the better I hope they will be using them when I send them out on their own.