My daughter is a sophomore and has a really bad spending problem when it comes to food. With her busy class schedule, she eats out far too much. She also orders clothes online a lot. She’s in more credit debt than I’d like her to be at this point. It helps that she has a part time job, but that doesn’t mean she should be spending money like this. I’ve talked to her about budgeting before and even got her to try using Mint. But she never ended up sticking with it, said she hated setting up and keeping track of all those budgets.
I recently got her to try this new mobile app called Pluto Money a friend recommended. They’re apparently the first to design money management for students (i.e. no traditional budgeting), and it sure looks like it so far. They do automatic tracking too and focus on saving goals. She seems to be liking it so far, but only time will tell if she improves.
I’d love to hear how you all approach this with your children. Do you try to set up financial plans with them? Do you try to get them to use finance apps? How often do you check in with them? I don’t want to stunt her growth as an independent young women, but also want to make sure she handles her finances well. I don’t want her to graduate on a bad footing and start burning her full-time paychecks… Thank you!
P.S. I’m new to this community, wish I knew about it earlier!
I make my children spend their own money for non-essentials and I don’t allow them to have credit cards they can’t pay each month. Honestly, at college the necessities are taken care of - food and housing. You probably sent her to school with sufficient clothes. There are no needs to spend money on, only wants. One of the key tools to living within your means is to learn to prioritize your wants to fit within your income. I would make her spend from her savings/earnings and take away the option of using credit for anything. A debit card is just as useful as a credit card but if you don’t have the money in the account you can’t spend it, which a better “limit” than any app. Once the student learns to spend within their means then work on getting them to save a little each month by matching the savings.
Longer-term, a credit card is a great tool for building credit… but having them use credit cards before they understand how to balance income and outgo is a hazard to their long-term financial health.
DO NOT have her use a debit card. You need to find out the financial penalty for overdrawing…which you CAN do…on these accounts.
We had our kids work during college for the bulk of their discretionary spending money…and we didn’t care what they spent it on…they earned it…the spent it.
Who is paying your daughter’s bills? Who is giving her the money to eat out, etc?
I would review the budget with her over break.
And I would suggest she stop using a credit card until she has a JOB whereby she can pay off the full balance each month.
Use cash. My daughter found out pretty quickly that it took her an hour of work to pay for 2 Starbucks when she had to hand over the $10 bucks.
My kids did have debit cards and ordered a lot of things off Amazon or other places, but most was required for school (books, art supplies). I’d see a few gifts or things for themselves, but they were paying for those things with their own money.
They are recently out of school. One has a good job and has probably wasted too much money, but it is her money and she is paying her bills (car, rent, insurance, and as of this money, her student loan). The other will never, ever, manage her money and will always spend every cent she makes. The goal for her is to not get into credit card debt.
It is incorrect to say overdraft fees are a problem for debit cards - they are a problem on all accounts that allow overdrafts. It’s a very simple matter to refuse overdraft protection on a checking account. Cash is the best solution if it’s possible as you actually watch your money disappear when you spend, but cash is not always practical. My youngest is in a big city and the metro doesn’t take cash but it accepts her debit card, ditto Amazon for books etc…
I think it’s too late for you to teach her. The best thing you can do at this point is allow her to reap the consequences of her choices. If you bail her out, she won’t learn. Most of us have learned our most valuable lessons through failure and through suffering as a result of poor choices. I know it’s hard to do this as a parent but I don’t see any other options this late in the game.
I think one of the ways to help your daughter “see” what is happening is showing her the math behind the credit card interest by downloading a credit card interest calculator and letting her plug in the numbers behind her debt. I showed both of my kids a plausible scenario of possible credit card debt when they were in middle school and they are still scared of what they saw. The scenario was $3,000 in credit card debt and making a $50 monthly payment without using the credit card again at a 19.99% interest rate. When they saw that it would take 38+ years to pay off that debt at $50 a month without ever using that credit card again, and the amount they would have paid in interest (about $20,000) they understood that credit card debt could become a form of indentured servitude. I think your daughter is just not seeing the financial implications of her actions and may believe you will help her regardless.
We got joint credit cards with our kids that had very low limits. We taught them that credit cards are only for convenience and always pay on time. Freshmen year both kids had a meal plan and we payed the dorm room, or in older son’s case the last two years the rent and the equivalent money for a meal plan. We covered text books, the phone and laundry. They took care of incidentals from part time or summer work.
Does she have a meal plan, but has trouble getting to the dining room when it’s open?
I’m in the no credit card camp. DD is on one of our cards for emergencies only and for school related expenses that we pay for. If she’s unsure if its something we’d cover, she texts to confirm she can use the card.
All her incidental expenses plus part of her study abroad are on her so she’s very frugal with her $.
We have been talking to her about personal finance, and including her in family budget discussions since middle school.
We are firm believers that if you can’t afford it, don’t charge it and that credit cards are to be paid off monthly. Since that ship has already sailed for your daughter, I agree with @changethegame in showing her the hard numbers. I would also be tempted to tell her that since she seems to have so much financial freedom, that you expect her to pick up more of the tab for her college tuition.
Like @mathmom we let the kids have a credit card. It was a joint account with me, and the limit was $1500. And like many of the other posters, we did not provide money for discretionary spending. Or books/supplies. The kids had jobs and earned their own money for that sort of thing.
We also started before college. Starting at 16, they had summer jobs to pay for their “wants” during high school.
Now, as adults, they both budget. I’ve got one I’d definitely call a spender, but she’s managing. Lately, I’ve watched her make some pretty smart decisions on delaying purchases. Seen her make some dumb ones, too, but hey, that’s what people in their 20s do sometimes. The other is a definite money hoarder.
Both my kids are pretty good with their money. We started teaching finances (and all that compound interest stuff) when they were very little. We did give each of them a copy of Dave Ramsey’s “Total Money Makeover” (great book and a pretty easy read).
My D uses Ramsey’s “Every Dollar” app on her phone. She finds it really easy to use. (easier than Mint I believe).
Our kids had our credit card and an ATM card at a local bank with a modest balance checking account, both for emergencies (you don’t want a kid going into finals with broken eyeglasses, or getting into a car with a drunk friend who is driving because they don’t have money for a cab). Everything else they figured out. We paid for books and trips home, their jobs paid for the day-to-day spending money.
Kids are MUCH more frugal with their own money in my experience.
But the meals out is a real problem. I think you might want to sit down with your D and ask if she’d rather go off the meal plan and take that exact amount of money and figure out her dining needs on her own. Paying for meals she doesn’t eat is crazy expensive.
My D has our credit card and her own debit card tied to her bank account. The credit card can only be used with our permission and is typically used for things like books and plane tickets home. She lives in an apartment without a food plan so also has permission for a set amount at grocery stores. Everything else is on her dime from her account. I don’t know how much she spends - its not my business. If she runs out, she runs out. If she wants to splurge by going to a restaurant that’s on her.
As a parent, I can think of only two instances that could be construed as emergencies for college-aged children: illness and car breakdowns. We have an HSA with a debit card that covers medical expenses. For possible car breakdowns (and out-of-gas scenarios), D20 has a Synchrony Bank “Car Care” credit card that can only be used at gas stations and auto shops - so no purchasing cute boots online. It’s in her name as well, so she is building credit. I pay the bill because it is worth my own peace of mind to know that she always has a means to pay for gas. If there are any other true emergencies, we can always transfer money to her debit card on the spot.
If you think going cash is the best way (and it is but not always possible) use Dave Ramsey’s envelope system. They make great wallets for the system. Instead of working up to a set number for spending, you put the money in an envelope for a specific category and when it’s gone, you’re done spending for the month in that category.
The fact is that cash is MUCH harder to part with than using a credit card.
Be careful with debit cards that have the capability of doing Visa/MC “credit” transactions*. Since Visa/MC numbers are frequently stolen for fraud, that means that fraud on a debit card can easily empty the associated account, and it may take some time for the bank to investigate before the money is put back (in the mean time, checks written for rent, etc. may bounce, and the account owner has no money). In contrast, fraud on a credit card runs up bills that you eventually do not have to pay (and there are stronger legal protections for the account holder on credit cards).
*Debit cards without this capability are often called “ATM cards” and can be used only at ATMs and usually PIN-based “debit” transactions. However, those opening new accounts may have to specifically ask for such a card, as opposed to a more fraud-vulnerable one with Visa/MC.
One of my kids had his debit card information stolen while he was in college. He still had the physical card, so we think a card skimmer was used at either a gas station or restaurant. Of course we’d warned him that debit cards do not carry the same protections as credit cards, but he used it anyway (it was supposed to be used only for cash withdrawals on campus). This was 4 or 5 years ago.
Thankfully he checked his account balances daily and saw 4 transactions of around $200-$300 each, all at Sam’s Clubs within a 100 radius.
Our credit union reimbursed him, and he then set up a 2nd checking account only for debit card. The 2nd account never had more than $100 and did not have overdraft protection, so charges would be declined. He handled everything himself. It scared him, I think, to see how quickly his money could disappear.
For a credit card, we started our kids with a Discover It card which they could get themselves as college students. They were responsible for paying the bill in full every month, and we both had access to the online account. I also received emails of all transactions. We pounded it into their heads that credit card bills must be paid in full every month.
If any of them had abused a credit card, that credit card would be shredded.
OP - you are going to have to lay down the law with your daughter. No credit card and no online ordering. She’s shown she’s not ready for a credit card just yet. Going into debt already is a huge red flag. Shred the card. Yes, there may be tears or screaming, but do it for her own good. She can purchase a school meal plan or learn to use a cash system for her meals.
I taught my kids how to budget by giving them an allowance starting at 9th grade. Instead of giving them money for haircut, going out to movies/dinners, presents, etc, I gave them a lump sum beginning of every month. My kids didn’t work because of their demanding EC, but they still had personal expenses, so it was decided I would pay for their expenses. Instead of giving them money when they asked for it or need it, I gave it to them in a lump sum. They were expected to manage their spend accordingly. By the time they got to college they knew how to manage larger amount. Both of kids used a spreadsheet to manage their spend.
Some of my friends thought the amount I was giving was rather larger, but when they added up what they were paying for their kids, they were comparable.