Wednesday, April 7, 2021

Credit Cards for Kids? (The Allowance)

Is giving a child a debit or credit card a smart move?  Or is this how life is today? Good Question!

I never received an "allowance" and that is a shame, not because I didn't get all that "free money" but because I didn't get a chance to learn about money early on.   On the other hand, my elder siblings got allowances, and it backfired so badly that they decided early in life that fiscal responsibility was a bunch of hooey.  Let me explain.

Before my next eldest brother and I were born, it was just my older brother and sister.  And they thought that was just fine, no doubt, and were none too happy when two more joined the brood.  My parents were just figuring out this "Parenting" thing and making a lot of mistakes along the way, which is typical.

My Dad gave both kids an "allowance" which was a fixed amount of money to spend every week.  They could spend it on whatever they wanted to, but it was understood that certain personal items, such as toiletries and whatnot, as well as their school lunches, were to be paid for from the allowance.   The idea was, the kids would learn to budget their money, shop for bargains, and save up extra leftover cash for something they might really want.   And of course, part of the rules was they couldn't just decide not to buy toothpaste or steal it from Mom and Dad's bathroom.

Every week, they would have to give an accounting of their spending to my Dad, and my Sister would usually end up in tears (as she later recounted to me).   Dad wanted a down-to-the-penny accounting of what she had spent, and she basically couldn't remember it all or be bothered to write it all down, so she would account for maybe 90% of the spending but was unable to account for the rest.  Dad would then yell at her (his standard mode of operation - anger) and she would cry.

Lesson learned: Anything to do with money was hard and bad and should be avoided.  Oh, and Dad is a dick, who should also be avoided whenever possible.

My Sister later confessed that if she had just lied about the rest, said she spent it on candy or whatever, she could "balance" her account to the penny and Dad would have been happy.   If only she learned accounting fraud!  Her life would be totally different.

Sadly, she never learned that lesson and money was a mystery to her for her entire life.  It didn't help any that her drunken husband cashed his paychecks at the bar and bought rounds of drinks for total strangers and came home late at night, shitfaced with a pocket full of change.  Sadder still, she had to ask my Dad for money, just like the little girl sitting in his lap, crying, at age 7, when she was well into her 40's.

Financial ignorance causes a lot of grief, sadness, and pain in life and it need not be so.  It took me the better part of 40 years to treat money seriously - logging every expenditure in Quickbooks, never bouncing a check or missing a credit card payment, paying off all my debts, and living debt-free.  Until you get your finances under control, well, it is just a train wreck waiting to happen - and will happen.

Before then, I was sort of like most people - I paid the bills, including the minimums on my credit cards, and then sort of spent the rest of "stuff I wanted" or whatever and never really thought about my net worth, whether it was increasing or decreasing, or where my financial life was going.

Like I said, my two eldest siblings had allowances and it went horribly wrong.  When my brother and I came of age, we had no allowances.  Our needs were provided for by Mom and Dad who bought us "stuff" and we had a charge account at the local drugstore.   Well, at least for a while.  Once my brother and I realized we could just charge things, all bets were off, and Dad got the bill one month and put an end to the charge account.

So my brother and I were broke all the time.  For some reason, my parents never thought that maybe we would need pocket change.  In fact, I ran up a debt with the school cafeteria that was over $100 by the end of the school year.  My Mother never seemed to have enough money in her checking account.  I think, in retrospect, they were house-poor, but they never shared their financial information with us, which is sad as (1) we could have all worked together toward a common family financial goal and (2) we would have learned about finances that way.  In fact, in retrospect, my parents sort of lived their own lives, separate from us children, which was kind of sad.  But I digress.

Being broke all the time was one reason I got a paper route and later, went to work at the Old Tyme Gas Light Restaurant before the cook shot himself (beating Gordon Ramsey to the punch!).   I wanted money to spent.  And I spent it.

Sadly, even though earning money as a kid and later as a teen was desperately difficult, I spent pretty much every penny as I made it, and never gave it much thought.  I never kept track of my income, and never saved a dime.  I made enough money in my paper route that by the time I was 14, I would have had enough to buy a decent used car.  But I spent it on record albums and candy and later on, beer and pot and other stupid things.

I was poor, in a sense, in that money passed through my hands - a lot of it, relatively speaking - and none of it managed to stick.  Looking back, that seems to be the hallmark of poverty.  The poor are not without money, they just blow it on idiotic things, which is why the stores selling idiotic things are all in the ghetto, either in the inner city or near the trailer park.  The guy with the fancy rims on his ghetto cruiser or trailer-park pickup truck isn't wealthy, but desperately poor, and he paid way too much for those rims and owes money on them at 15% interest.  That's a lot of money to spend on something you really don't need at all.

Getting back to our topic, there are ads on the radio (OK, Pandora, anyway) for a debit card for children.  I see it on YouTube as well.  At first, my reaction was, "Well, that's stupid!  Teaching kids all the wrong lessons in life!"   But then I thought about it, and as I noted in a recent posting, cash is going away, pretty rapidly.   Why bother teaching your kid the "value of a dollar" when you can teach him something he will need to know in his lifetime - how to deal with electronic cash.  Because the credit and debit card are not going away and maybe it is better to learn how to use them carefully than to deny their existence.

My Dad had a wallet full of credit cards.  You may not remember this, but back then, wallets were as thick as a hamburger, and by that I mean a Big Mac.  There was a plastic strip that folded out like two feet long, that held all your credit cards.  Visa and M/C natch, maybe Amex.  But also department store cards, gas station cards, and whatnot.  You could have a dozen cards without even trying too much.

And I think I learned my poor financial habits from my Dad.  Once a month, he would set up a card table in the living room and "do the bills."  That was a good night to sleep over at a friend's house.  A six-bedroom house and none of them could be a home office!  But that was how we did things back then.  Anyway, I guess Dad would realize we were spending way more than we should be, and by the end of the night, he would be in a fury.   But was it our fault?  We had no budget, as a family.  Mom and Dad held all the purse strings, and they charged up stuff until they ran out of credit.   And I think that is why he got mad - mad at himself, really.   Turn off those damn lights!  You're wasting electricity!

I mentioned before that Credit Cards are like a loaded handgun.  A useful tool, if handled carefully and properly.    But something that can blow your head off if you handle it poorly or leave it laying around for the kids to play with.  And it goes without saying that if you drop it, it may go off, if it has a hair-trigger.

You have to know everything about your card - the interest rate, the credit limit, the balance (hopefully zero) the statement date, the payment due date, and so on and so forth.  You'd be surprised how many folks don't know this basic information.  Like my Dad, I would pay bills "once a month" and often this meant late payments on credit cards (in the days of mailed checks, before the Internet) and thus late fees and jacked rates.  I never bothered to shop around on cards to get the best interest rates.  I had gas station cards that had scandalous rates and thought nothing of it.  A few dollars here a few dollars there for "convenience" - right?   Heck, I think I was even paying ATM fees back then.  Duh!

In today's cashless world, you have to be able to manage your cards - debit or credit.   And maybe training kids to do this is a good thing.  It could also backfire horribly.  Again, it all depends on engagement.  If you don't work with someone on this, they could go off on their own and end up in trouble, and as a parent, you have to bail them out.  We saw this back when I was in college and they were offering credit cards to college freshmen - who would go out and charge up a storm and them months later have to make "that call" to Dad and tearfully explain how they fucked it all up.  It was supposed to be a way of establishing credit, and in a way it was - bad credit.  Graduate from College with a 500 credit score - smart!

The Greenlight "FAQ" is awfully vague other than to admit there is a $4.99 a month charge for up to five cards for your kids.  Parents can "charge up" the card manually or even automatically (as a virtual "allowance.")  But what about hidden fees?

Suppose Junior wants to buy pot with his debit card.  Drug dealers don't take plastic, so he goes to an ATM at the Bodega and pays a $5 fee to take out cash.  What is this teaching your kid?   Suppose he goes over the limit, is the charge covered and an overdraft fee charged?  That was a gag the banks were playing for a while, with credit cards - free "overdraft protection" so if you went over your credit card limit, they would cover the charge (so you wouldn't be embarrassed!) and then sock you with a $30 overdraft fee.  Nice folks.

Apparently, parents can control whether the kid can use the card at an ATM, and if so, for how much.  But I suspect that since "greenlight" has no native ATMs around, you would be socked with ATM fees no matter where you go.  Their website isn't very specific on these questions.

Five pages into their website, I find a list of fees.  No, they don't charge ATM fees, of course, but the ATM owner likely will, as it is an out-of-network transaction.  No mention of other fees, such as the fees that many prepaid debit cards charge just to check your balance.

Of course, they promote other "features" as making the $4.99 monthly fee worthwhile.  You can set up a list of "chores" for your kids to do (mow the lawn, do the laundry, wax your car, re-roof the house - say, having kids is swell!  Just like personal slaves!).  I am not sure how the card can tell when the chores are done, however.   Does the family robot check up on this?

The real deal is another page into the site - the cardholder agreement.  This is the legalese that tells you what your rights are and aren't - and what few people bother to read.  It seems pretty typical - I could not find any "gotchas" other than those in ordinary Credit Card cardholder agreements.

So is this a good deal or not?  Depends on you.  Depends on your kid.  It is like the idea of handing out free laptops to kids in inner city schools. Great idea, until the kid has the laptop stolen on the way home from school by a neighborhood gang.  Or suppose he drops it - who pays to fix it?  Or maybe a relative pawns it for cash?  Does the school have to keep buying the kid laptop after laptop?  Interesting questions, I don't have the answers.

I can see where even in an affluent suburban school (or particularly so) junior shows off his new debit card to his friends and by the end of the day, some bully has swiped it from him.  First lesson:  If you have money, don't crow about it.  But kids, being spastic as they are, are inclined to do just that.   And maybe a painful lesson like that is a lesson remembered.  Or maybe, as a responsible parent, you tell your child this ahead of time - that a personal debit card is not for show-and-tell or for showing off.

The other problem I could see is that Junior would go out and spend it to the max the first day, trying to impress his friends and all, by buying things for them and himself.  So he goes to lunch at school the next day.... and the card is declined.  Again, maybe a painful lesson, but one that is remembered.  And one that is never learned if a phone call later, Dad bails out junior again and again.

So I guess it is really value-neutral, in some regards.  It is no different than the "allowance" my Sister got and mis-spent (or just didn't learn to lie about).  You can be just as irresponsible with cash as you can be with a debit card.  It all depends on the child, and the guidance (or lack thereof) they get from the parents.

I didn't explore their other tiers of service, which include an "investment" feature.  Little early for the little buggers to be buying Bitcoin and Gamestop, isn't it?  Because that's what they'd invest in, given the chance.

$4.99 a month (OK, five bucks!) doesn't sound like a lot, but when you realize you are paying $60 a year for the privilege of having a debit card, it seems like a lot of dough.   I mean, talk it over with your kids - which would they rather have, the convenience of a debit card, or $60 more in cash every year?  If they are astute, they'd go for the latter.....

Like anything else, the company that advertises the most often doesn't have the best prices.  There are other "debit cards for kids" out there with no monthly fees.  After all, they do make money on each transaction, right?  Why pay a monthly fee on top of that?

I never pay fees - annual or otherwise - to have a debit or credit card or checking or savings account.  Seems to me that getting your kid a card that costs $60 a year is, right off the bat, teaching them all the wrong things.... For example, that "convenience" is worth wasting money.

But that's just me. Thank God I don't have kids.  I can't imagine what it is like these days.  I see children as young as three, surfing the Internet with their own cell phones.  Oh brave new world!