debit card traditionally has been defined as plastic with limits – one can only spend today what one has in one’s bank account today. Traditionally, a credit card has been defined as plastic without some of the limits – one can spend today more than one has in one’s bank account today, up to the credit limit established by the card issuer, with a legal obligation to eventually pay it all back later, with interest.

But now there’s a new form of credit that’s been created by the opportunistic folks at Kwedit, a new payment network targeting the young and the otherwise unbanked, a group that is most likely financially unsophisticated.   This new type of credit is called a “promise to pay” and it allows people to play online games now and pay later, if they can cobble together the necessary funds.  And if they can’t pay, then they can use the Kwedit.com site to “pass the duck” i.e., pass the bill onto parents or others.  And if the parents won’t pay, then there really aren’t any consequences, other than the fact that they take away your Kwedit privileges – eventually. 

Teaching youth that one can renege on one’s obligations, financial or otherwise, without consequences is hardly a responsible thing to do.  Our current financial crisis is the perfect example of how many Americans have been there and tried that with disastrous results.  So now that this new form of credit is available to teens through sites like Kwedit.com – then our first line of defense as parents is to bite the bullet and get kids trained on real credit long before they leave home.

Many suggest that 18 is a good age to start.  Others suggest perhaps age 16.  But with the advent of Kwedit and other sites sure to follow on its heels, I suggest we start at age 12 – when most kids are developmentally prepared to understand the concept, are still mostly tied to us physically at the point of sale (internet transactions aside), and are still willing to listen to their parents.

This means that you start to teach your child the basics about money at a young age.  Teach them about the choices they have for money, save, spend, donate and invest and how to set goals for those choices.  Once they are accomplished with cash, head to checking, then debit and then credit.

When introducing credit at age 12, there are some distinct advantages.  Credit is provocative enough of a privilege to warrant their attention and adherence to your rules.  They are not driving, so, many of the transactions will be done with you by their side. 

A couple of rules to help get this started:

1.)    Explain what credit means.  You only use the credit card as a convenience.  You only charge items that you already have the cash in hand to use to pay the bill when it is due. Credit can also be used for emergencies – but define “emergencies” as needing to fix a car to get to work to earn money to pay bills.

2.)    Advise them that you have “co-signed” this credit card because they are not allowed to have credit on their own because they do not have income. 

3.)    Enforce consequences and teach them that while you are partners on this card, the debt is there’s alone to bear.  Charge them interest and take the card away until they have paid up.

4.)    Review statements every month.  Talk about the purchases and ask them if they see those purchases as a “want” or a “need” and explain that needs come first. 

5.)    For the first year, no online purchases or actual purchases without parental approval.

6.)    Let them make mistakes now while they are under your roof and under your control.

I’ve done this successfully with my own kids.  I have partnered with my oldest daughter on a credit card since she was 16.  I would have done it sooner if she had made it through boot camp – cash, checking and debit – sooner. 

We just got her a credit card in her own name this year as she now has enough income from her job to qualify.  Interestingly, she wants no part of the card.   I suspect that will change when she heads off to college in the Fall.   And when she finally does take control of the credit card, she will be ready as she is armed with the years of financial education she received from her parents starting in first grade. 

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Susan Beacham
Written by Susan Beacham
Susan Beacham founded Money Savvy Generation in 1999 after almost two decades in private banking and investment management complemented by considerable time teaching at the elementary level.

    5 Comments

  1. Avatar
    Loree Hirschman March 10, 2010 at 5:35 pm Reply

    Hi Susan,

    As a parent, I really appreciate your helpful advice about teaching our children about the responsible use of money; thank you.
    I work with Kwedit and have a couple of comments about your post:

    – Kwedit is only available through websites with whom we partner, and we don’t partner with companies whose audience is younger than 13.
    – Kwedit is not credit. We do not provide credit, lend money, underwrite loans, charge interest, impose late fees, levy account maintenance fees, or do any of the other things that make credit cards expensive and problematic for so many people. Instead, we facilitate payments for people who want to make on-line payments with cash.

    Thank you,
    Loree

  2. admin
    admin March 11, 2010 at 8:20 am Reply

    Thank you for appreciating the work that we are doing. I wish I could say the same about what your company is doing. Unfortunately I can’t.

    I’ve looked at your partner websites. Their target demographic goes below the age of 13. FooPets co-founder Scott Sorochak indicates in a NYTimes story dated 2-7-2010 that FooPets “…core demographic is 12-14 year-old girls”. FooPets privacy policy states the following: “If you are under the age of 13, please have your parent or guardian register and assign you a FooPet, then together share the daily experience of pet ownership.”

    As for Kwedit not being a form of credit, in my opinion, if it looks like a duck, walks like a duck and quacks like a duck, it’s a duck. But a dangerous duck because it does not teach the financially unsophisticated any real world consequences. And the fact that Kwedit is trying to pass off some of what it is doing as a form of financial education is a slap in the face to those of us who truly work in the financial literacy arena.

  3. Avatar
    Stacey S. March 12, 2010 at 1:07 pm Reply

    Susan,

    THANK YOU… THANK YOU… THANK YOU!

    As a parent, financial education program facilitator and supporter, I appreciate all that you and Money Savvy Generation do to help our children understand the world of money and finance.

    I also have concerns about companies that market products disguised as financial education products and/or programs. Last year I noted that one of the large credit card companies started touting a debit card for youth that parents can pre-load for a monthly fee. I passed the info along to the Frugal Dad blog where he posted about the card. While we need to teach our kids to be money savvy, I don’t agree that paying a monthly fee for a debit card is the right message to send. My 15 year old has had a FREE debit card through our credit union for almost 4 years now.

    Where the Frugal Dad and I differ on “plastic” is that I am in total agreement with you that we MUST teach kids how to use credit wisely. Like it or not, our society is becoming more and more cashless and almost all electronic transaction. Having a credit card is important because:

    1. It helps develop a credit history for your credit score which is necessary for larger loans – mortgages, rental properties, business start-up, etc.
    2. Try booking a plane or hotel without a credit card to secure it.
    3. It’s safer for travel and offers benefits such as insurance, etc.
    4. Emergency situations where cash isn’t readily available.
    …and many more advantages that are for another time/post.

    So, it just makes sense to teach kids about credit as they grow and I think the tween years are the perfect starting point. Otherwise it becomes the “forbidden apple” that they just can’t wait to take a bite out of. If they are allowed to use credit under the watchful eye of a parent, they can learn and make mistakes that will positively impact their financial futures as opposed to making those same mistakes as adults where the result can have HUGE negative affects on their financial “report card”. They NEED practical, real-life experience to increase their financial IQ’s (and making mistakes is part of the learning process).

    A question for Susan: With the new credit card legislation, will it be more difficult for parents to put their child’s name on their account?

    Again, thank you,

    Stacey

  4. susan
    susan March 16, 2010 at 12:56 pm Reply

    Stacey: The answer to your question is no, the current legislation will not make it more difficult to put your child’s name on your credit card account.

  5. Avatar
    rickey July 23, 2010 at 2:15 pm Reply

    I also have concerns about companies that market products disguised as financial education products and/or programs. Last year I noted that one of the large credit card companies started touting a debit card for youth that parents can pre-load for a monthly fee. I passed the info along to the Frugal Dad blog where he posted about the card. While we need to teach our kids to be money savvy, I don’t agree that paying a monthly fee for a debit card is the right message to send. My 15 year old has had a FREE debit card through our credit union for almost 4 years now.

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