How do you control the spending of your teenager/young adult child, or a grandchild you may be assisting? If you’re like me, with a child graduating college, another in high school and one coming up through middle school, every time you turn around there’s a hand out asking for cash. This may lead you to consider getting an extra credit card, hoping this will simplify your life and eliminate the cash hand-out. However, I’ve found that giving a teenager a credit card in this generation is like handing them your open wallet. We have a family joke ”just send it to the cloud!” because just like ordering on Amazon, using a credit card is so easy that it’s forgettable, and happens without any real effort. And the kids never see the bill (whose teenager checks the mailbox these days?) so unfortunately this is a quick way to accumulate unexpected debt, even with the best of intentions.
So what’s a financially savvy parent/grandparent to do? Go with a debit card in their name. A debit card allows the parent to add a certain amount of money to the balance, so spending is capped and budgeting is learned at a young age - before they leave your house!
Here are my ‘best practice’ tips to get you started:
- Establish a budget by considering the needs of your young adult – does she use a car and therefore needs to be able to buy gas? Do you contribute to her social needs by allowing her let’s say $30 a month to use for fun activities? Does she stop and get family groceries at your request? If the child is in college, are there living expenses you plan to cover or book costs or school fees? Figure out all of the normal monthly needs, add those up, and establish an average monthly expense amount that is financially manageable for you.
- Sit down with your young adult and explain the budgeted amount. Explain the needs (gas/family groceries/books) and the wants (social activities/extra clothing/snacks) and how you’ve allocated for both. Explain that if she runs out of money due to un-allowed spending in week 1 of the month, then she’s out of luck for the next 3 weeks.
- Set up an automatic monthly transfer from your bank account or set a reminder for yourself to fund that account so it’s a regular/automatic process.
- Most banks offer an app that can be easily downloaded by both you and your young adult to see current balance and recent spending, so you both know how it’s going. Make sure to select low balance notifications by text or email so you’re made aware of when funds are running low.
- Review the card/app options – certain functionality can be really handy, for instance, a balance transfer option via the app or bank website, which allows you to make one-time transfers to the card for an emergency or unexpected expense that you approve of (think car repair or towing!)
This approach has worked out very well for the past 6 years with our oldest and now we’ll be starting it again with our newly-driving high schooler. The debit card option really gives you ultimate flexibility, and curbs unexpected debt and the family tensions that arise when spending is not handled well. You’ve also set expectations and established boundaries for your young adult that will hopefully start her financial journey off on the right track. Happy parenting!