Like some others have posted, my kids had one of my credit cards, but it was only for school travel expenses or the occasional online purchase that they couldn’t use their debit card for. And we trued up each month where they paid me back once the bill came for those online purchases. In an emergency, they could text to ask to use the card.
They owned all spending money and book costs. Also covering any expenses if they took unpaid summer internships and weren’t living at home.
Someday she has to own this issue. I’d say college is a good learning time. If you cover housing, basic meal plan or grocery allowance, tuition, fees, and transportation (or some subset of these), have her cover the rest. She’ll learn if she runs out of money. No more coffee drinks or snack bar runs, no movies with friends, etc.
On every credit card statement it now shows how long it would take to pay off the current bill if the card holder only pays the minimum, and how much the interest charges would be under that method of repayment. I think it also gives the figures for a 3 year payoff.
One danger to only having a debit card is that if there is fraud the bank or credit union will immediately cancel the card. This has happened to my daughter a couple of times and it takes them a few days to get her a new card. She’s had no way to get money for a few days. Usually the fraud is someone has her numbers (or has cut a new card) and shops online or with the fake card. We (or the credit union) almost always find the fraud immediately (because D doesn’t keep much money in her debit account so going down $40 is noticed). Still a big inconvenience to have to go through all the paperwork and get a new card. It has not happened to my other daughter or me, just this one who uses her debit card ALL the time for small purchases. I never use the debit card and I don’t think other daughter does as much for things like coffee or snacks.
Once they figure out how not to spend more money than they have, they need to learn to spend less money than they have, so that they can save up for their kids’ college and their own retirement.
Once kids are adults they should be in charge of their own money. If our kids needed something that we were planning to pay for when they were in school we would order it on our Amazon account and have it sent. If it was just stuff they wanted they would order it on their own account.
We did not give our kids spending money in college. They earned their own money and spent it as they wished. The older two are graduated and on their own now. The youngest is still in school.
Dave Ramsey on debit card vs credit card.
" If you hold a debit card from a well-known name like Visa or MasterCard, it will have the same policy about unauthorized charges that credit cards have. "
Anyway worth checking out the fine print–of course they’d you rather have a credit card over a debit card.
Again from Dave Ramsey site:
“When you make a purchase with your debit card, you should have the choice of running it as a debit or credit purchase. Always choose credit. Credit? Yes. This will insure that you are protected by the card company’s zero-liability policy—you will not be responsible for unauthorized transactions. If you have to use your PIN, be sure to memorize your PIN and never carry it with you. Report lost cards immediately, change your PIN frequently, and use your debit card only if you must.”
But note that it is also more of a hassle for your money to be missing for however long it takes the issuing bank to investigate than it is to have extra credit card charges that you eventually do not have to pay.
Yes, agree that just because it has the Visa logo does not mean that the issuing bank offers the same protections as a credit card. They are under no obligation to do so.
Our credit union offered a card to the kids in high school and they had no overdraft. It just rejected everything if there was no money in the account. It would go to our account if it hit something odd. Never a fee. The kids learned that it was embarrassing to have their cards turned down. Both learned to check their balance daily and not to go over. S switched to his own account now. He has his own savings account with what he earned from the summer in it, he is starting to learn to invest by putting $5 a week into an investment account. He has his own debit at school and puts the money we give him in it and budgets from there. If there is a major car issue he has enough in savings to cover it but we help reimburse that for now. He pays for his gas, food away from school, any extras (school shirts, etc.) from that. He is very good at budgeting it out. I think that learning early in HS helped a lot. Now my daughter (who is older) still has the same debit from hs attached to our accounts. She is getting better at budgeting but is learning that when the money runs out it isn’t fun.
I didn’t let my kids have their own credit cards while they were on my payroll. They had my credit cards to use with my permission. My kids did quite a bit of traveling on their own, so I didn’t want them to be stranded at an airport without ways of paying for another flight or check into a hotel.
Dave doesn’t know everything. Visa and MC are just clearinghouses, not banks, so therefore don’t issue accounts. . Federal law protects credit cards a LOT better than debit cards. While banks do offer the same protections on debit cards, they don’t HAVE to. If the bank fails and the FDIC steps in, you won’t get those same protections.
Federal law requires the bank to not charge the card for the dispute until the dispute is resolved. If it is a $2000 charge, that money will not be on your card or balance during the pending dispute. You can charge that amount again without an overdraft or late fee. On a debit card, it is up to the issuer on whether to put the money back into the account during the investigation.
Gas stations used to put a $75 hold on the account whenever you got gas with a debit card, and it would be there several days, even if the gas was only $30. Use the card at a hotel or for a rental car? Hold on the account.
We have two kids (now age 16 & 19, so D20 & D17 high school). At the outset of high school, we got them “MONEY” accounts through Capital One 360, a teen product that’s totally online and visible to parent. Debit card for ATM or other purchases. Linked to their (not huge) savings accounts and to a household savings account of ours, from which I could transfer a modest monthly allowance that was meant to cover basically everything: clothes, transit, cafeteria, gifts for friends, textbooks, restaurants/cafes. We still covered some large-ticket necessities likes winter coats, athletic shoes, etc. No ability to overdraw. but they could transfer funds from savings account if needed. As the parent I can set up alerts if a purchase or ATM withdrawal over a certain amount is made (used to be set at $50, I’ve bumped it up to $75 for D20 and $150 for D17).
Flash forward to college for the older kid. Everything pretty much stayed the same except 1) no more monthly allowance from mom & dad and 2) she works two campus jobs and those paychecks are auto-deposited into the same account. We still cover her cell phone because it’s on family plan with ours. She also has a debit card linked to our HSA if she has medical expenses at school. If she makes a purchase that I feel I should cover (like a train ticket home for vacation), I just Venmo her the reimbursement.
This has all worked well so far. Both kids get nervous if their balances drop too low, and both have curtailed behaviors like too many pricey coffees or too many thrift store cashmere sweaters because it just cuts into an already not huge balance.
I agree with no credit card. Debit with no overdraft possibility is the way to go. They all have Venmo, so if it’s a true emergency (car breakdown, etc.) you can always Venmo.
I have never been a fan of using a debit card to pay for anything. I only ever use it to get cash, which is rarely these days. Everything just goes on the credit card and is paid off at the end of the month. I will happily take whatever rewards I get for using a credit card for everything. If I take the cash option I probably get $700-$1100 per year. That is free money I get for just using the card.
That is what I want to teach my kids. Will they have the discipline? Probably not right away but they will need to learn quickly. My D19 has had jobs each of the last two Summers. She works plenty and manages her money. Not always well, but decently. We try not to pay for much these days. Gas is on her along with many other day to day expenses. I was proud of being able to pay for my own stuff while in high school and college.
I remember being able to open my own credit card while in college.
Didn’t read the whole thread and I’m sure it’s been mentioned. The best way I know to help kids mange finances is to have them get a job (in HS, in college, etc.) to pay for all their “extras”. In our case, once they were able to start working, they paid for their own entertainment. It was never about the money. It made them make choices. Do you really want this or that? Can you afford to take your girlfriend out to a nice dinner for her birthday? They learned to not just buy things once they were spending their own money.
Two kids. S is quite frugal but then blows a chunk on something he really wants to do. D spends money all the time but on little things. She stays away from the bigger purchases but never hesitates to grab a latte and meet with friends.
Either way, it’s their money. S has made it through 3 semesters of college without asking for money and he’s having a blast (works 10 hrs a week to support all of his spending money). He finished this last semester with more in savings than when he started.
OP, I agree with @chercheur that she is “failing” at having a credit card, for now. And this is SUCH an important, one of the most important IMO, lessons to learn as a young adult. I assume that you co signed it, so I would imagine that you could cancel it, or put it on hold, or lower the credit limit way down to whatever her monthly income is (if she has a part time job, or you guys give her a set amount of money each month). This last would probably be the best way to learn. Then you have to stick to your guns when she calls halfway through the month and her spending money is gone. You may have to start with the very basics: “You have $200 a month spending money. That’s $50 a week, for meals out, clothes, concert tickets, etc.” Also help her figure out a weekly amount to put towards the credit card balance. Will she have a part time job she can return to over break to pay down the balance, or save up for next year? My DD babysits at college for spending money, and saved her summer job earnings for her school year spending money and savings as well.
^I don’t think it’s true that the parent necessarily co-signed it. My kids had CCs starting early in college, and I never co-signed them (though I did, as others have said, give them emergency cards on my account). Discover gives them out pretty easily, and if you behave with that one, Visa and MC will easily follow.
Our D had a savings account that we converted to a checking account when she turned 18. She is an authorized user on our credit cards, but since she went to college she is not allowed to use them. She applied and got her own credit card with a small credit line. She has no meal plan, so we give her the amount of what we would have paid a month and that is her budget. Her credit line is less than what we give her, so for now it works out. Sounds like the Op’s D has a bigger credit line than what she earns? I would probably sit down with her and look at statements and help her to see where it’s going and what cut backs she can do. Hopefully, the app does a weekly budget, I think short term goals work better, it’s too easy to reason spending on a concert in the beginning of the month and saying, oh I can just skimp for the rest of the month- it probably won’t happen. I remember when my sister got into this situation, she put one of her credit cards in her freezer, if it wasn’t with her she couldn’t use it.
We’ve warned our D to never spend more than what she can afford to pay off at the end of the month- so basically, she charges in lieu of cash. Funny enough, because she does pay it off every month, the credit card has lengthened the time she has the lower credit line! They aren’t making any money off her.
The credit card is hers and in her name? If so, it’s harder for you to control.
We have been upfront about budgets for years. Each kid has a credit card in his name but that’s connected to my account, and I pay the balance each month. The credit card company reports to the credit bureaus in all of our names so they are tied to my credit (better or worse but I’ve always paid them off since I’ve worked). We got them the credit cards back in high school.
They can charge pretty much anything up to $25 without asking. They ask for larger purchases. The older kid wants to be way more financially independent right now so he barely charges anything. The younger kid charges more. Sometimes he charges fairly large items or amounts and sometimes we talk about it (sometimes it’s a group purchase somewhere and I see a Venmo payment to me shortly thereafter so I don’t bother following up with a conversation).
They both work small part time on campus jobs (oldest one telecommutes for an engineering firm when he has extra time.) Their scholarships cover a lot- I pay rent for youngest and make him use the cash portion of his scholarship to offset monthly spending $ until he runs out. I didn’t give him any spending $ this term until this month. They both seem to be budgeting just fine. Cooking meals at home is something they both do each week to keep their spending down.
I’d rather pay a bit more out of pocket now because of miscellaneous credit card spending. I figured if they went off to college and got their own credit cards, then I wouldn’t be able to see if they were overspending and gathering debt. Same with their bank accounts- they’ve had the same checking and savings accounts for many years and at this point I don’t need to be on their accounts. They haven’t taken me off, and so I quietly watch their spending from afar. And so far that’s worked for us- they seem to not go hog wild on spending whether from cash accounts or credit cards.
@abruinmother seems the consensus is pretty clear:
-no credit cards in her own name or one with very low limit
-make her responsible for own spending money
-don’t bail her out when she runs out of spending money
-let her make some mistakes
One thing I really like in Dave Ramsey’s plan is the “emergency fund”. It’s money set aside for the car that breaks down and other unforeseen life mishaps. In this plan your credit card is not the lifeline–that just puts you in debt. You use the emergency fund and then save to replenish it.