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IN THE NEWS: No Plastic! Let Children Learn to Handle Cash

Oct. 1, 2005

From The Deseret Morning News

By Janet Bodnar

Kiplinger's Personal Finance Newspapers recently reported that pop superstar Madonna had given her 8-year-old daughter a credit card with a $10,000 limit. "She's hoping to teach Lourdes to be responsible with money," a friend told reporters.

That's over the top, even for Madonna. But after I wrote a column earlier this year recommending that parents not give their kids credit cards, I received a couple of thoughtful letters from parents who disagreed.

One mother noted that her son had managed a cash clothing allowance at 14 and a bank account at 16, and applied for a credit card at 18. Another parent co-signed for a credit card for his teenage daughter, but made her pay the bill with her baby-sitting money.

Every child is different, and some are ready to take on responsibilities -- financial and otherwise -- sooner than others. But in general, I'm sticking to my guns: Giving kids credit cards too early does more harm than good.

The best way for children to learn financial responsibility -- and, I contend, the best way to ensure that they'll pay their bills on time and stay out of debt -- is to teach them to manage cold, hard cash.

The parents who wrote to me actually prove the point. In the first case, the young man had been handling cash successfully since he was 14. In the second situation, the young woman was responsible for paying her credit card bill with her own money, and presumably had her own checking account to do it.

We may be living in an electronic age, but using cash and writing checks is still more real to kids than paying with plastic. Even some adults have trouble controlling their spending when all they have to do is swipe a card (or click a mouse). It's far better for kids to take things one step at a time, first with cash, then a checking account with a debit card and finally a credit card.

I've been up on this soapbox for a long time, but I'm not alone. James Roberts, a marketing professor at Baylor University who has done extensive research on credit card use among adolescents, concluded that teenagers who use credit cards "are less price sensitive, spend more and overstate their available wealth compared to those who write checks and pay cash." Amen to that.

Have a question about kids and finances for Dr. Tightwad? Write to Dr. T at 1729 H St., N.W., Washington, DC 20006. Or send the good doctor an e-mail message (and any other questions for this column) to jbodnar@kiplinger.com.

(C) 2005 Deseret News Publishing Company

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