My son is about to graduate from high school. This summer, before heading off to college, he’s going to be doing volunteer work on the other side of the country. I think it’s a good idea for him to have a credit card for emergencies, so I’m adding him to ours. I’d like to make a “contract” with him (of course it wouldn’t be legally binding) that lays out some terms for the card so he knows how to use it responsibly. He’s been responsible enough to save $2,000 for this trip, but at the end the day he’s still 18. So what do you think should be included in our contract? What do you think I should tell an 18-year-old boy with good intentions (but short attention span) about credit? I’m thinking this could turn into a good life lesson for him. – Sandi
It sounds like your son already is ahead of the curve when it comes to handling money responsibly. Being able to save $2,000 for this trip is a good sign that he can set goals, plan ahead and follow through on those plans — skills that will serve him well for the rest of his life.
And yes, it’s a great idea to use the summer trip as an opportunity to give your son a crash course in Credit Cards 101 to further add to his money management skills. There is a lot more to managing credit cards well than meets the eye, and the earlier your son learns to develop good habits around credit usage, the better.
Now, when it comes to making your son a user on your credit card, it seems like you have two somewhat conflicting goals. On one hand, you want him to have the credit card for emergencies. On the other hand, you want him to learn how to use a credit card responsibly. Using a credit card for emergencies only might not give him that experience.
If your main intention is for your son to learn how to develop good credit card habits, you will be better off creating a “contract” set up around teaching him how to use a credit card for convenience during this trip, rather than only for emergencies. This is most likely the way he will be using a credit card anyway, once he heads off to college and gets his own credit card.
So for your “contract,” think about what you want him to learn when it comes to using credit cards for his expenditures in the future. Here are some suggested points to include that will help him bypass the credit card traps many people tend to fall into:
- Set target spending goals. One of the most common credit card blunders is to succumb to impulse spending. To help your son avoid the temptation to blow all his savings within the first few weeks, include within the contract an average spending target for each week. This target should be based on how much he plans to spend on the entire trip and how much of his savings he wants to retain for college.
- Track credit card charges. Another pitfall of credit card use is that it’s all too easy to lose track of how much you’ve already spent and on what. Give your son a checking register and show him how to enter all his credit card charges. Make him subtract each charge from his weekly spending goal, so that he always knows if he is staying within his spending target.
- Connect spending and paying.Credit cards encourage overspending because they separate spending from paying — and delays the pain of paying to the future. This makes it all too easy to forget that the piper still has to be paid.For this reason, it’s important that you don’t just pay the credit card bill each month for your son, even if it’s with his money. Instead, require your son to pay his share of the credit card bill. The easiest way to do this is to get him set up to pay the credit card bill online, either once a month or once every two weeks (agree upon the deadline in your contract). You can even put his $2,000 into a savings account linked to the online payment account, so that his credit card payment automatically is withdrawn from his savings.
- Sweeten the deal. If you can, create a financial incentive to reward him for staying on track. For example, for each week (or month) he stays within his target spending goals, you could promise to pay him a reward in the form of an allowance that he can use as spending money during the trip or when he goes off to college. Specify in your contract how much the reward will be and exactly what he needs to do to earn it.
- Set limits. Last but not least, when making your son an authorized user on the account, be sure to set a spending limit on his credit card. That protects both you and your son should his good intentions give way to his, well, 18-year-old boy attention span.
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