Credit or debit card for your teenager INQUIRER.net
September 22, 2009
(This is part of Take Charge of Your Money, a partnership between INQUIRER.net and Citibank to help readers handle their personal finances well.)
Q: My friend's son just entered college and I learned that she gave him a credit card last June. So far, she has had no problems as her son has not been charging much. My own teenage daughter is a senior in high school and I'm thinking of letting her have a supplementary credit card or a debit card next year. Is this a good thing to do? Will this not encourage too much spending? Joy
A: It is every parent's wish and prayer that his/her child will grow up financially responsible. No one wants to see his/her child being deep in debt and dependent on his/her family in adulthood.
This is why parents should inculcate in their children good money habits. They should be taught how to value money, how to use it responsibly, and how to save for their future.
The concept of giving an allowance or baon helps parents teach these good money habits. Ideally, children should be given an allowance beginning the early years of grade school, with clear instructions on what it may be used for. As children realize that they can decide whether to spend, save or give to the church or needy some or all of their allowance, they learn that they are responsible for their money decisions as they experience the consequences.
When children move on to college, they are ready for bigger lessons in life. This includes money lessons. A debit card and a credit card may be a good way to reinforce financial responsibility.
But first let's differentiate between a debit and credit card.
With a debit card: 1. you can pay for transactions without carrying cash and without incurring interest since amount is immediately debited from your bank account. 2. you won't have a bill at the end of the month. 3. you have to limit your purchases in accordance with your cleared funds in your bank account.
With a credit card: you can charge purchases and just pay for them later when you receive the bill. you are given a high credit limit, thus you may charge purchases even if you don't have the money in the bank right now. you will have to pay for interest and late payment charges if you don't pay your credit card bill in full and on time.
In adulthood, it is highly likely that your daughter will have both a debit and a credit card. It would be a good idea to have her start on using one or both cards now while she is still under your care so you will be able to guide her well on how to handle them responsibly.
The good thing about giving her a credit card now is you can review or track her spending. She will also have to be conscious about her credit limit and charge only for items that are considered necessary. A credit card will also be helpful when there are emergencies.
With a debit card, your daughter will learn how to live within a budget based on the bank balance. She may also be even more conscious of whether to purchase an item with it or not since the money will be deducted right away from the bank account. However, should emergencies rise, the money accessible via a debit card may not be enough.
You were worried about encouraging too much spending if you give your daughter a credit or debit card. There is nothing to be worried about if you take the time to lay down the ground rules before giving her a card. Here are some tips:
1. Discuss what it may be used for (e.g., books, clothes, payment of cellphone bill), when it may be used (e.g., once a month for clothing) and up to how much the purchase or transaction may be (e.g., P1,000 for clothing a month). 2. Talk about the consequences if she doesn't comply with rules. 3. Let her know that she can consult you first before making a purchase if she has questions or concerns. 4. When the credit card bill arrives, discuss the charges with her to check if she prioritized needs over wants. 5. Give her the responsibility of making sure the credit card bill is paid on time. After you both go over the bill, give her a check with which to pay the credit card bill. This will inculcate in her the importance of paying bills on time. 6. Remind her to safeguard her credit and/or debit card at all times and never to lend it out to anyone. Also remind her to pick a password that cannot be easily guessed.
Responsible money habits can be learned early. Good luck!
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