A few years ago, I was asked to make a guest appearance on the Today Show to discuss what is “too young” when it comes to giving a child a credit card. When NBC asked me to take on this subject, I immediately thought of a young girl, Kayla, who without question was the most fiscally responsible teenager I had ever met. I decided to bring Kayla and her mother on the show with me.
Kayla’s parents made the ‘controversial’ decision to give her a credit card when she was just 15. Her mother had problems with credit cards when she was a teenager and in college. She believed hands-on experience was the best way for Kayla to learn.
As we began to discuss this on the Today Show, viewers began to call in before we even finished the segment – most were appalled that parents would make such an “irresponsible” decision.
Kayla is now in her 20’s, saving for retirement, living on her own, and debt free. Most important, she is confident about her ability to manage money and create a lifetime of financial security.
Unfortunately, few young people have that sort of confidence. A study of first-year college students by Higher One, a company that markets financial services to college students and online financial education provider, Everfi, finds that only 58% felt prepared to manage money, while 76% already had outstanding credit balances of $1,000 or less.
“Financial experience among incoming college students is increasing, but there has not been a concurrent increase in basic finance management skills or fiscal planning. This is worrisome as students continue to take out more and higher student loans, affecting their lives both before and after graduation from college,” the report says.
The Big 3
I’ve been a financial journalist for over 20 years and done a significant amount of research into financial behavior. I can tell you through my research and as my experience as a mother that there are three necessary ingredients when it comes to helping your children develop financial behaviors that will allow them to thrive.
1. Experience: Kayla’s parents got this one right. They were smart enough to get their daughter a secured credit card. secured credit card. A secured credit card is ‘secured’ by a deposit account – a savings or checking account, for example – and the cardholder must deposit usually between 100% and 200% of the amount of credit they desire: If you put down $1,000, you will be given credit in the $500 – $1,000 range. They kind of work like prepaid cards, except when you spend on a secured card, it’s not deducted from our account. You must pay off the balance every month. This is where the learning came in for Kayla. Her mother made her write down each purchase in her check register and regularly check the balance online. In addition, you build a credit history with a secured credit card. Check out sites like bankrate.com to find a secured credit card that’s right for you and your family. While every child is different, always ask yourself, “If I don’t teach them about money, who will?” Be sure to give your child regular real life experiences that will let them learn the lessons the need to thrive as adults.
2. Example: Psychologists and financial experts are acknowledging that our first impressions about money stay with us, particularly if we don’t become conscious of them. In other words, you can’t expect your child to have healthy discussions about money if they’ve never heard one. Whether you’re both aware of it or not, you are your child’s gold standard for right and wrong. If you say credit card debt is bad, yet you carry debt loads and live beyond your means, your child is going to note that you are okay, despite your proclamations. Ask yourself:
What are the most important lessons I want my child to learn about money?
- What are financial behaviors I want them to avoid?
- What changes do I need to make in order to walk the walk and be the role model they need me to be?
3. Communication: As older generations can attest, the “don’t talk about money in front of the kids mentality,” has not served us very well. In addition to talking to your children about the importance of things like saving, investing, and debt management, in your words and in your actions, it’s even more important to talk to young people about the ‘non-financial’ factors at work in our money – the things that really make us spend. Teens, for example, are going to be tempted to spend money to ‘keep up.’ It’s important to talk to them about factors like target marketing by advertisers – how ads try and manipulate them and make them spend. Teach them to watch those feelings come and go. Also, discuss how factors like race and gender play out in how they will be treated by the world.
Most important, talk to your child often about their goals and dreams. Make them aware of how much they cost. That will give them some of the strength they need to stand-up to pressures to spend in ways that don’t serve them. A deep connection to their goals will also make them want to learn even more about money, and help them avoid going to college feeling insecure and unprepared.