Don’t Wait Till They Leave the Nest, Teach Your Kids Money Management Now

A good friend of mine has two kids, a daughter who is a senior in high school and a son who is in the eighth grade. This friend is also something of a planner, and just the other day, she said to me, Odysseas, I want to get Charlotte [we will call her that for the purpose of this article] a credit card for when she moves away to college next year. Which one should I get her? This is a common question for parents to ask. However, it is inherently flawed.

Parents often simply send their children off to college armed with student credit cards, which they are told to use only in case of emergency. Too frequently, however, these children misuse their newly found spending capabilities. Why? Because they were never taught to effectively manage their finances. Considering that we teach our kids nearly everything else, from how to tie their shoes to how to drive a car, why not teach them the ins and outs of personal finance?

Therefore, my response to my friend’s inquiry was: I’m glad you asked me early because Charlotte got some work to do before you set her loose with a credit card.

You see, learning fiscal responsibility is like learning how to ride a bike; you have to start with training wheels. The training wheels of spending are prepaid cards. Thus, I told my friend to get a prepaid card for Charlotte as well as for her son, John, [again, not his real name] because he is at an ideal age to begin learning how to manage money. Prepaid cards, I told her, are great starter spending vehicles given that they allow parents to keep track of how much money their kids spend and where they spend it. Additionally, parents can teach their kids how to budget by only loading money on their prepaid cards biweekly.

After Charlotte and John have demonstrated the ability to spend with prepaid cards, I told my friend to take one training wheel off, so to speak, and give them monthly cash allowances. Cash gives kids more spending freedom because parents can’t monitor where it is used. In addition, doling it out monthly will force your child to budget over a longer period of time, instilling discipline in their spending.

Once this discipline is been hammered home, parents should take the other training wheel off yet keep hold of the handlebars. For my friend, this will include opening checking accounts in Charlotte and John’s names. Checking accounts serve as apt indicators of children’s financial progress because they can be overdrawn and checks can be bounced. If either occurs multiple times, the accounts can also be cancelled.

If they don’t, parents should make their kids authorized users on their credit cards or get them their own starter credit cards. These moves amount to a parent letting go of a child’s bike while remaining nearby in case he or she loses balance. They will also teach kids to spend within their means and pay their bills in full each month.

Any child who completes this gradual financial learning process will be well prepared for financial autonomy. Since my friend has begun this process with Charlotte and John, they are well on their way to being prepared for the real financial world. After reading this, you are also ready to set your kids on a similar path. Ultimately, if every parent teaches their children how to properly manage their money, we will all be better off because such widespread financial literacy should serve to lessen the pervasive credit card misuse and risky lending that helped lead to the Great Recession.

This article was written by Odysseas Papadimitriou, CEO and Founder of CardHub.com, a website that helps consumers compare credit card offers.

8 Responses to Don’t Wait Till They Leave the Nest, Teach Your Kids Money Management Now

  1. When my children (both 17 yrs old) entered college, I added them to my credit cards. They were prepared and never abused this responsibility. This gave them access to a high credit limit and they handled it well. As adults, they handle their finances in a responsible way. They learned those good habits as teenagers.

  2. I’ll tell my kids to get a job and then I’ll help them get a credit card if they can’t get one entirely in their own name. If they don’t want a job, then they don’t have money to spend. It’s pretty simple.

  3. I love your ideas to teach kids how to handle their finances. I tell my girls to “Take care of your money and your money will take care of you.” Since I’ve started my lessons on personal finance, my nine year old no longer spends every dime that runs through her hands and my 6 year old could give Scrooge a run for his money! LOL Making them spend their own money on items that are not necessities has taught them to think about what they are spending their money on and what type of enjoyment they will get out of it.

  4. Great post – we have 2 kids – aged 5 and 7 and we have taught our kids about earning money by giving them a weekly allowance for completing chores as well as how to save this money – they establish goals of either something they would like to buy or a place they would like to go visit and then they save each week a portion of their allowance until they can reach their goal. Investing now in educating your kids about money will benefit them in the long run. Hopefully by the time they are old enough for a credit card, they would have mastered the art of money management! :)

  5. Although I was never given a credit card as a kid, I think it’s a very good idea to help them learn money management skills now so they can stay financially safer in the future.

  6. More important than teaching our children money management is to teach our children what it is we actually use for money,how it’s created and put into circulation and how that affects our lives.

  7. It’s terrible really considering that I work in finance but I don’t much talk to my kids about money management – I’m not sure how, to be honest. They are still only young – 3 and 5 – so they have a piggy bank and know they can put their pennies in that I give them or their birthday/Christmas money but that’s about it.

    I was never given a credit card when I went to university. I was also never given lessons in money management so I learnt the hard way – by trial and error.

    I would rather not have done though, so may have to start thinking about some practical lessons!