Driving our daughter to take college entrance exams, I began to consider how we can help ease her transition next year to a young adult. Time to teach her how to drive? Share tips to survive public commute? Give her a credit card?
She already owns a debit card but in case she has money emergencies, I was thinking a credit card may help. Thankfully I came across this statement in my news feed:
“To this day, I wished I had listened to my mother, because she was right.”
Anthony ONeal said these words to Marketwatch.com and as a mother of two young girls, I wanted to print them in huge block letters and hang it up in their room.
What would make a grown man say these words? It was falling into a credit card debt trap that took him years to get out of and caused him to live out of his car for 6 months.
He wrote on his website, anthonyoneal.com, “at nineteen, I was deep in debt and short on hope, with no direction of where my life was headed. After hitting rock bottom, I turned my life around.”
Now a bestselling author, ONeal is passionate about helping young adults learn how to make smart decisions with their money and avoid the credit card horror story that was his reality for many years.
ONeal’s first book, Graduate Survival Guide: 5 Mistakes You Can’t Afford to Make in College, is an easy read, or you can choose to find him on YouTube or listen to his podcasts. His 19 and homeless video testimonial available on his website or on YouTube is a good start to show your teens the perils of plastic spending.
With no income, even at 18 years old, it is unlikely your child headed to college can get approved for a credit card. But he or she can get a card thanks to parents who will guarantee one. Before you hand over that plastic currency, make sure you have the serious money talk, and let it be just the first of many you will share to help shape them into financially responsible adults.
#1 Set a cap on credit card spending.
Principal cardholders or the cardholders who own the account can request their card company to issue supplementary cards. This is ideal for families so the husband or wife can be the principal, and the spouse and children can own supplementary cards. In requesting for supplementary cards, you can choose to share your full credit line, or cap theirs. For your children, I suggest you set a monthly cap. It can be as little as P5,000, or as high as your credit limit. Most card companies allow you to set this in increments of P5,000 or P10,000.
#2 Agree on what the credit card is for.
Do not tell your child that the card is for emergencies. What may qualify as an emergency for you, say to put gas in the car or a hard to find textbook, may not be the same for them. To your child, being hungry and wanting pizza and treating friends who are equally hungry may seem like an emergency. Pizza started ONeal on the path to money destruction, as he applied for a card to get free pizza and then started using it to pick up the tab for outings with friends. Instead, work on a list of items that the card can be used for and anything not on the list requires asking permission.
#3 Make sure there are penalties in place.
Having that shiny new plastic on their wallet can tempt any one, and your child may not be an exception. When you have the money talk, make sure to also cover penalties. If they use the card for a non-emergency expense and did not get your permission before swiping, maybe take that out of their allowance? It needs to hurt for the lesson to stick. The penalties should also escalate with repeated offense, e.g. you get the card for a month until you just cancel it altogether.
#4 Be firm or they will walk all over you.
The point of having penalties is so you can enforce them. But I have seen many parents give in and indulge their children when it comes to money. ONeal’s experience makes a good case for why you should be firm. His mother told him to cancel his credit card because he did not need one. He did not listen. By his sophomore year, he was kicked out of college for hazing and lost his campus job. He thought he could come home and move back in but his parents said no. His friends wouldn’t take him in too so he went to a Walmart parking lot and his car became his home for 6 months. Forced to work, he took odd jobs until his stepfather finally told him he could come home, and that’s when he committed to turn his life turned.
#5 Never too early to teach them work ethic.
ONeal held 3 jobs during the day, night and weekends to pay off his credit card debt. One of those jobs was a bill collector and he described it to Marketwatch.com as “probably the biggest motivator, calling other people, hearing their stories, hearing them cry.” He gave up that job as soon as he paid off his debt.
I don’t suggest children work in the same stressful job but they are many other options. My firstborn wanted a new phone that will cost an arm and leg and arranged with her father to work at his office during the summer to pay it off. There was no way working for 2 months will settle that debt but we saw an opportunity to teach her a lesson about diving into a debt with no working plan to pay it off. In less than two weeks, she realized it for herself and offered to sell her phone to me!
That was the first of many money talks with her we’ve had since, and next year when she is off to college, that conversation will continue. If I had my way, there will no credit card in her immediate future.
Disclaimer: The views in this blog are those of the blogger and do not necessarily reflect the views of ABS-CBN Corp.