Teaching Your Children To Become Fiscally Responsible

Have your kids ever used your credit card without permission?

According to a LendingTree study, roughly half  (52%) of parents let one of their kids borrow their credit cards to let them buy something online.  29% of parents with children under 18 have had their children use their credit or debit cards without their permission.

Their tech-savvy nature is way ahead of their ability to comprehend the financial consequences of mishandling credit cards.  As parents,  teaching our children how to become fiscally responsible early is essential. Teens can be impulsive shoppers for virtual gems we don’t understand.

When they are on their devices or ours–smartphones, tablets–they quickly lose track of time, and if they have access to your debit or credit cards, Zelle, or PayPal accounts, they can wreck our budgets.

Defining Fiscally Responsible

For government institutions, fiscal responsibility describes the ability to balance government spending and income taxes.

How fiscally responsible is the federal government?  The federal government’s spending on public programs exceeds the income taxes it raises from businesses and households.  A large imbalance due to spending exceeding tax revenues results in the US budget carrying a huge deficit. We’ll leave that task to our politicians to work down that shortfall.

Fiscally Responsible With Our Money

From the perspective of personal finances,  being fiscally responsible means taking control of our finances. This starts by making sure our spending does not exceed what we earn.

As parents, we need to convey to our kids how they can handle money by being fiscally responsible, starting at a young age. We also want to share our money blunders so that they can learn that we are not infallible. All of this may sound simplistic, and we will share our tips down below.

As older parents with younger kids, we often benefit from the money mistakes our friends have faced as parents. Like hackers that always find new ways to crack into our vulnerable accounts, our children are often one step ahead when it comes to new ways to order things online.

Greater Access To Spending Money Online

It seems that kids assert more power and have greater access to spending money than previous generations. They make in-app purchases of gaming subscriptions, skins, virtual currency, and character/team upgrades that go with those games. Boys may predominantly spend on gaming. Still, both genders spend on clothing, downloading movies, music, grocery, and food delivery services. Things may have worsened during the pandemic, with parents loosening the restrictions of playing games online on weekdays to offset the isolation.

A Story To Share

Let me share a story I recently learned about young teens below 18 whose actions cost their parents some financial grief. I’ll change their names to Fred and Fran but what they did is more common than you may think. Searching around the Internet, it is not unusual to see kids under the age of ten spending thousands on gaming before their parents realized the damage, like the six-year-old boy who spent $22,500 on a Sonic video game.

Fred and Fran were ordering coffee and lots of food, unbeknownst to one parent. The kids used their parent’s cards and account for the mischievous orders. Oddly, the siblings putting orders independent of each other with different restaurants and merchants.

Initially, they told one parent about their orders during finals week because of pending homework and got an okay.  They took that to mean that they had implicit approval to continue ordering that he never gave, so they ordered to their hearts’ content. Mom was clueless, wondering what the kids were eating since they stayed on computers in their rooms until late each night.

When Dad gets the first shocking bill, he tells his kids they need to stop ordering food. He said nothing more. They ignored his request until Dad got the next two month’s bills. Adding up the kids’ appalling spending, the kids during the slightly more than two months totaled over $3,000!!

The breakdown:

 

• Coffee          $542
• Movies         $118
• Groceries    $214
• Food           $2156

Reviewing the bills from this party, I found the amounts quite alarming. There is always a convenience factor when you have food delivered to your door, which pays a premium price. Fred and Fran ordered the majority using several delivery services:

• DoorDash
• Uber Eats
• Amazon (Whole Foods)

Living in Manhattan for most of my life, I rarely ordered food from restaurants even when I was working long hours, but it was from the restaurants’ menu if I did.

Premium Pricing

Doing research, I learned that the convenience of ordering from services like DoorDash is quite expensive. The fees–markups, delivery, service, other expenses (e.g., minimum orders, bags)–are enormous. DoorDash charges $9.99 for the monthly DashPass. No wonder City Councils across the country are cracking down on the up to 30% commissions restaurants are paying to delivery companies, capping these costs. Recently, delivery services have dropped to 15% commissions, still high considering the low-profit margins many restaurants make.

The kids seemed unaware or indifferent to the prices they paid and never looked or asked for a bill. They probably knew they were doing something wrong but not the financial magnitude.  It is easy to order stuff online, push a few numbers, and get a different meal every day. There is little connection between ordering and having the responsibility for paying for it.

Each teen ordered food on their own through Uber Eats or DoorDash, rather than directly from restaurants’ list prices.  The restaurants themselves have had limited staffing, hindering their ability to deliver food, especially during the pandemic. This left the door wide open for delivery services to make inroads by filling a need to deliver at higher prices. 

The premium prices were ripoffs at 30%-35% or more compared to the list price. Imagine one big Mac and fries from McDonald’s costing over $30 or one meal for $55.84 from Applebees!

Finally, the easier-going parent (it’s almost always the Dad!) blew the whistle when he saw the magnitude of the spending and told Mom who blew a gasket. The kids’ actions resulted in substantial financial damage!

Keeping the earlier LendingTree survey in mind, seven in ten Americans said their parents were good financial role models. However, younger respondents were most likely to disagree.  20% of younger people below age 37, said their parents/guardians were”bad” financial role models.

We can, and need to do better!

What Should Parents Do If Children Use Cards Without Permission?

When parents authorize minor children to use their cards, they are entirely liable for the amount as cardholders.

However, there is legal precedent for parental liability when your children under 18 use your card without your permission. In 2014, the FTC entered into agreements with Apple, Google, and Amazon that required the latter companies to refund millions of dollars for in-app gaming purchases made by children without parental consent.

You can’t return the ordered food already eaten, plus the parents are responsible for letting those bills pile up and not acting immediately once the first few orders showed up.

Going forward, this is a teachable moment for parents and an opportunity to teach their children about being fiscally responsible.

Some parents consider taking hardline approaches like threatening to go to the police for older teens that continually use their parents’ cards without permission. This punishment seems harsh and may not resolve a potential overspending issue that could plague young adults for years.

What Fiscally Responsible Parents Should Do

1. Check your credit cards regularly.

2. Flag unknown or unusual charges.

3. Remove saved payment information on relevant sites. It may slow down your checkout time (we all can slow down our spending!) on these shopping sites.

4. If you share devices or accounts with your children, you can set up password requirements for each purchase.

5. You should set guidelines, spending limits, and parental controls available with your cards.

6. Before authorizing your child on your card, give clear guidelines on what purchases and amounts are permissible and whether you want your child to inform you before their purchase. Use the available parental controls to turn off purchases for the kid’s Apple or Android accounts.

7. When your teens use your credit cards without your permission, make them responsible for paying the amounts you back over some time or with extra chores. They will learn this lesson more quickly.

8. Check your credit reports to make sure they have no errors and are free of fraud and scams. Young people, in particular, are often more susceptible to scams and get-rich schemes.

How To Teach Your Kids To Become More Fiscally Responsible

Start At A Young Age

Parents can instill good money habits when kids are as young as seven years, if not earlier. They listen more to us, have fewer distractions than in their teens, and see us as their role models. Talk to your kids about money so that they know it is not a taboo topic for them. 

Thinking about our financial future, and generational wealth, we want to be able to count our children to be responsible adults. 

Set Up A Budget

You can teach them what a budget is by using saving and spending examples. Write a shopping list and go shopping for a few items with them. Put the change from shopping into a clear jar for saving money. When the jar is filled, you can buy something for them they want. Delaying gratification and explaining the household’s priorities are excellent lessons.

Encourage Them To Save Money

Teach them how to postpone impulsive buys to save for bigger items in the future such as a bicycle, car, or college. Show them how you buy things that are on sale. Explain how you make choices based on priorities for your household. This lesson can help them to make their own preferences.

The Magic of Compounding

Using pennies or toys, you can teach younger kids about the benefits of saving and compounding interest.  When my son, Tyler was in kindergarten or first grade, he brought home a book, One Grain of Rice: A Mathematical Folktale by Demi.

It is an Indian folktale about Rani, a clever young girl who outsmarts the greedy king through the knowledge of doubling. For every good deed, the raja offers to reward her but she asks for only one grain of rice, doubled each day for 30 days. At the end of the 30 days, she will have enough rice to feed her entire village!

Handling Credit Cards

Talk to your kids about money, specific to credit card use, its benefits, and detriments. Explain how to use credit cards for convenience, build a credit history, and keep balances to manageable levels to pay them off.

Don’t rush to get your kids’ their credit cards or authorizing them to use yours without a healthy discussion. The CARD Act of 2009 raised the age to 21 years to get your credit card unless you can show that you earn income from a job, grants, and scholarships and can pay the bill.

You should also share the consequences of overspending. This bad habit can carry large balances when you can’t pay off the total amount and borrow at high-cost interest rates.

Potential For Scams

My kids argue for having credit cards because they don’t like carrying cash around. They find it is inconvenient. When you are a scam victim, the banks may freeze your access to your accounts, so having cash on hand becomes essential.

Share Your Money Mistakes

Don’t be afraid to share your credit card mistakes, if any. Our kids should know we are not infallible to misusing credit cards, overspending, or errors when we make investments. We don’t want them to be afraid to take risks, but we can inform them about potential pitfalls.

Final Thoughts

Children and young adults will make mistakes on their way to becoming fiscally responsible. As parents, we should point them in the right direction by teaching them how to handle money and avoid some of the pitfalls we have made. Generational wealth can only be passed down when we know we have shared our values with our children.

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