Editorial Policy

Don't Let your Kids Talk You into Credit Card Debt

Erica Sandberg

October 2, 2012

QDear Erica,

My 11-year-old and 15-year-old want the newest technology, but I can’t afford it. What can I tell them so they will understand I cannot go further into credit card debt to buy the latest phone? I’m tapped out as it is. — Kylie

Hi Kylie,

Intellectually you know that indulging your kids to the point of maxing out your cards is a dreadful idea, but emotionally, well, you’re a mom who loves to see her kids happy. Presenting them with what they’ve been begging for will guarantee smiles. Keep your feelings in check, though — their grins will be fleeting, but your credit card balances won’t be.

Reject the inevitable “everyone has them so we must” argument, too. According to a July 2012 survey from Chase, many parents are refusing to spend money on the latest and greatest techy stuff. Half of the respondents said they wouldn’t be purchasing smartphones and tablets their kids were asking for this back-to-school shopping season.Ask Erica

Your little ones are big enough for a frank talk about money and debt. Here’s what you need to explain to them.

The household cash flow: Explain how much is coming in from your job and any other sources, as well as what is going out to keep everyone fed, warm and safe. Round numbers are fine, as long as your kids walk away with a strong sense of the finite nature of your income. Show them that every month you have a certain amount to work with, and if you spend more than that, you’ll run a deficit. Clearly, everyone in the family can’t get everything he or she wants. I suspect that you’ve already done this, in your own way, but showing them on paper or with a spreadsheet can really drive the point home.

What consumer debt is: Surely your kids have watched you swipe the cards, but do they know how it all works? They must understand that everything you charge must be repaid by the end of a term or it will increase in cost. Give them lessons now. Review how you got the credit card account, when and why you use it and what happens if you go overboard. Then address their unaffordable tech desires.

Say something like, “I don’t have the cash in my account to pay for that thing, so I would have to charge it. I don’t want to do that because, next month, I’ll have to come up with a payment for it and that means I’ll have to take cash away from something like food or gas. You want to eat and get around, don’t you?”

Their own economic power: If you’ve been giving them an allowance, or if they’ve been working jobs around the house or neighborhood, your kids have their own money to spend. Allow them to splurge on the nonessentials they crave. If they don’t have enough to get what they’re begging you for, show them all the ways they can earn more. Explain that they’ll need to save for a period of time to reach that goal.

You may even consider offering your kids credit so they can become accustomed to art of borrowing and repaying. For example, if one wants a tablet that has a price tag of $400, say you’ll accept a down payment of $100 right now and will accept $50 per month for the next six months. You can make it even more realistic by adding on finance charges, such as another $5 per installment. Make it formal with a written contract that details the repercussions for not paying on time. This could be repossessing the item until your kid can scare up the cash (harsh!) or adding a financial penalty to the balance due.

Now your children won’t love it that you aren’t willing to open your wallet for everything they want, but that’s OK. They’ll survive.

Got a question for Erica? Send her an email.