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Teaching financial responsibility: the smart case for giving your child a credit card

“Helping your child build their credit score is an invaluable gift."

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Nearly everything is purchased online these days.

With their colorful designs, customizable parental controls, and growing popularity among peers, it’s no surprise that kid-focused debit and credit cards have become increasingly appealing to families with young ones. Gen Z and Gen Alpha live in a vastly different financial landscape from their parents, and now, digital payments have largely eclipsed cash transactions. From concert tickets to food delivery to school supplies, nearly everything is purchased online. So, how can parents prepare their children for this new digital frontier and financial world that they themselves have not even experienced?

Ask the average parent about giving a credit card to a child, and they'll dream up a nightmare scenario: spoiled kids making endless purchases, unchecked impulse buying, mounting debt, and the development of poor financial habits. However, for the first generation growing up in an almost entirely cashless society, it makes sense for them to understand the value of money and how it’s used sooner rather than later.

Money, tree, financial responsibility, independence, financial literacyThe goal is financial independence. Photo by micheile henderson on Unsplash


According to a 2019 CreditCards.com poll, six million American parents have at least one minor child with a credit card. Winnie Sun, co-founder and managing director of Sun Group Wealth Partners and member of the CNBC Financial Advisor Council, gave her three children credit cards before they entered kindergarten. While this might seem extreme, she believes these early financial practices helped her children develop healthy money habits. In her Op-Ed for CNBC, Sun notes that her own parents added her to their Visa Gold card when she was 13 years old.

"My mom specifically told me that it was for emergencies, or if I had permission beforehand to use it," Sun recalls. "She thought it was a way to help her daughter in case she needed money, but what she didn't know then was that it also helped me learn how to handle credit early in life.”

Credit card, finance, debit card, swipe, financial literacyEarly financial education is crucial. Giphy

Financial experts are increasingly convinced that young adolescents should be included in conversations about money, recognizing that early financial education is essential for navigating today's digital economy. But when’s the right time? Andrew Latham, a certified financial planner with SuperMoney, explains that parents should assess readiness based on specific criteria.

“Parents should consider their child’s ability to handle financial responsibilities, understanding of money management and the overall need for a card. If a child can budget their allowance and has consistent needs to make purchases independently, they may be ready for a card,” he explains.

And which option is better for kids: debit or credit? Well, there are distinct advantages and potential drawbacks associated with both, which parents should consider carefully.

Credit cards

The primary benefit of getting your child a credit card is building a credit history. Credit history length makes up about 15% of your FICO score and up to 20% of your VantageScore. A longer credit history shows that someone has managed their accounts responsibly over time, demonstrating reliable financial behavior. As a result, lenders and credit card companies are more likely to approve applications and offer better terms to those with an established, positive credit history. By adding your child as an authorized user on a credit card with consistent, on-time payments, you can help them build strong credit from an early age.

Child, strong, financial literacy, credit score, money You can help your child build strong credit. Photo by Ben White on Unsplash

“Helping your child build their credit score is an invaluable gift,” writes Jae Bratton for NerdWallet. “A good credit score may help them secure a job, get lower interest rates on loans and, when the time comes, a top-notch credit card of their own.”

However, there are risks. Children under 18 cannot legally have their own credit card; they can only be authorized users on a parent’s account. As the name suggests, authorized users are allowed to use the card, but aren’t responsible for paying the bill. Therefore, parents will ultimately be responsible for all charges made on the card. If your child makes an expensive purchase, it could potentially affect your own credit utilization ratio and even damage their credit score. Jessica Pelletier, Executive Director of FitMoney, a nonprofit that provides free financial literacy curricula for K-12 schools, advises parents to remind their children that “there are firm limits…in place for authorized users.”

Debit cards

On the other hand, debit cards offer a more flexible yet tangible way for children to understand how to manage spending money. For Matt Gromada, the head of youth, family and starter banking at JPMorgan Chase & Co., he believes that early debit card access is a crucial component to lifelong financial literacy.

“Having a debit card opens the door for important conversations and real-world scenarios about the basics of finance—from spending and saving to explaining interest and how it accrues. It also gives your child a sense of pride, independence, and freedom, providing an opportunity for real-life experiences and learning,” he says.

Breaking free, financial literacy, debt, money, money management Break free of financial debt. Giphy

With debit cards, kids are limited to the amount of money available in the account, so they can't overspend beyond what is in the account. There are even modern debit cards specifically designed for kids, such as Greenlight, which offers a range of features that make parents and children feel secure and in control. There is no minimum age requirement for users, and parents can restrict spending at certain stores, set up safety SOS alerts, receive real-time notifications, and turn the card on or off remotely. This is also an easy way to transfer allowances to your child.

According to BECU, a financial cooperative, “a debit card can help your child learn financial responsibility basics such as keeping a card in a safe, dependable location, staying within spending limits, using a card for purchases, checking on balances, and monitoring for fraud.”

Of course, the main drawback of debit cards is that they don’t help establish or build a credit history. So, what’s right for you and your family? Start a dialogue today and discuss the best option for your children.

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Education

Finance expert deftly points out the double standard between men's and women's hobbies

Maybe manicures and lattes aren't that "silly" after all.

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Are women's manicures the new avocado toast?

We’ve all heard millennial money woes get blamed on “frivolous” purchases like avocado toast, which is, as we know, both laughable and maddening. But just ask financial expert Tori Dunlap, and there are other "double standards” regarding spending habits that are just as frustrating…one prime example being the way we view women’s hobbies versus men’s hobbies.

“I did all this research for my bookFinancial Feministabout the way women spend money versus men, and the frivolous spending, the spending that is the reason you can’t get rich or the reason you can’t get ahead, is only feminine spending,” Dunlap noted in a video posted to her TikTok.

As for “women’s hobbies,” Dunlap listed lattes, manicures, and shopping. Granted, these activities can add up (especially with the price of coffee these days) but often they are shared experiences with friends, or a form of self care (few things are as empowering as a fresh set of nails, after all). So there’s an added mental health benefit.

And yet, it’s these purchases that are “the reason women aren’t rich.” Meanwhile, hobbies traditionally seen as masculine, like NFL season tickets, sports betting, golf and video games, obviously warrant a far heftier price tag, and yet are seen as much more acceptable pastimes.

@herfirst100k 🤯
♬ original sound - Tori Dunlap — Money Expert 💸


Dunlap’s point clearly struck a nerve with many women, who shared their own experiences of being questioned about the frugality of their own hobbies by the men in their life whose choice of entertainment cost a small fortune.

“My husband has probably $20,000 worth of gym equipment. I really just wanted a Dyson air wrap 😂,”

My coworkers & boss made fun of me for spending $200 on a concert ticket ONE time meanwhile they spend $150 on golf EVERY WEEKEND. Not to mention the season tickets to baseball and football game,”

“My dad's tools cost like $100 each but he complains when my mom goes to Micahel’s once a month.”

It was also interesting seeing how many women’s hobbies still served others in some way, whereas men’s hobbies only served themselves.

For example, one person wrote, “I spent $600 on an embroidery machine I can use year-round and for various projects and for gift giving…we spent $3800 on golf clubs for my husband to go golfing 2 to 7 times a year.”

This might come across as a battle of the sexes, but there’s a broader underlying theme at work here. Much like the avocado toast controversy of yore, we see an advantaged subset of society blaming a more disadvantaged group for consuming ‘luxuries,’ rather than seeing the system that creates the disadvantages in the first place. In other words, are we really going to chastise folks for a little retail therapy instead of the money hoarding, resource exploiting billionaires and corporations that give us the real issues? C’mon.

As Dunlap put it, “The reason women aren’t rich is because of systemic oppression.”

Still, at least we can all agree that hobbies do us a world of good—especially if they get us off of blasted screens. So really, as long as it truly does no harm, let’s just let people find joy wherever they can. Be it at sports stadiums, or at the salon.

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Trevor Noah boils down the problem with the mega-rich using 'unrealized gains' as money

"It's such a fun game that billionaires get to play."

The Daily Show/Teddy Schleifer/Twitter

Trevor Noah's talked about Elon Musk's Twitter purchase in a Between the Scenes segment.

In the era of the mega-billionaire, much has been made of how such gargantuan wealth is built and what kind of taxes on wealth are fair and unfair.

The intricacies of economics can make such questions a bit tricky both practically and ethically, but there's no question that billionaires get enormous tax breaks through loopholes in our tax system and through straight-up tax legislation favoring the wealthy.

For the average American who will never see so much as one percent of a billion dollars in our entire lifetime, wrapping our minds around the financial workings of extreme wealth is like trying to learn another language. The whole "here's how much money I earn, here's what I can write off, here's what I pay in taxes" thing is pretty straightforward, but not how the uber-rich life works. Wealth doesn't equal money in uber-rich-land—except when it does.

In a Between the Scenes moment from a 2022 episode of "The Daily Show," Trevor Noah highlighted the weird way billionaire wealth sometimes counts as money and sometimes doesn't in a segment on The Daily Show. In his signature funny-but-smart way, Noah broke down the hypocrisy of billionaires being able to treat their stock shares as money when it comes to buying businesses, but not when it comes to paying taxes.

"I'm by no means an economist, nor am I an expert on stock markets and all things finance-related, but you have to admit, a lot of what happens on Wall Street seems like a scam," he began.

He talked about how the stock market went up one day because of what Chair of the Federal Reserve Jerome Powell said about raising interest rates, then plummeted the next day because of people misinterpreting what he said.

"First of all, how does that happen?" he asked. "How are markets changing because somebody didn't read something or understand—and all of you at the same time? And secondly, why do markets do that?"

He said the nature of stock markets going up and down feels "scammy," and somehow we're supposed to be convinced that the stock market is good for us.

"I get it for people's retirements, and I get it for 401Ks and I understand those aspects of it," he said. "But I've realized there are so many things that are designed in such a slick, scammy way."

He gave Elon Musk's pending purchase of Twitter as an example.

"People argue that you cannot tax billionaires on the shares that they hold in a company because it is an 'unrealized gain," he said. Then he explained that he understands that argument because the shares haven't been sold, so there's no actual money in hand. "So you're worth the money, but you don't have the money…and it could also crash, and then you have nothing, so we can't tax you on it."

"You can't tax the people on a thing because they don't have it, it's just there," he says. "Okay fine."

Then he talked about Elon Musk's offer to buy Twitter, in which Musk put up his shares of Tesla stock as collateral. Noah explained how using his Tesla stock as collateral to get banks and investors to put up the cash for him to borrow to buy Twitter.

"So you can buy a thing based on what you have, yes. But when we want to tax you, you can say 'I don't have it,'" said Noah. "It's such a fun game that billionaires get to play because all their money is in that."

Noah points out how we can't fudge around with the IRS due to where our money is located. "You can't be like, 'That money's in the bank, I don't have that money. What money? It's in the bank. Only when I take it out, then you can tax me. For now, it's in the bank, IRS."

That's not something the IRS would accept.

"But if you have billions in shares, you can then use that as money, to then get more money, but not get taxed on any money, because you 'don't have money.'"

Noah said he's not suggesting that we tax people on unrealized gains.

"But I am saying, it seems to me that you then shouldn't be able to use a thing that's unrealized as collateral," he said.

That last point is worth restating. Noah isn't saying that billionaire wealth in the form of stock shares should be taxed like liquid money. He's questioning whether people should be able to use their untaxed wealth as collateral to get liquid money loans to avoid having to liquidate their own wealth (which they would then have to pay taxes on).

Food for thought. Watch:

This article originally appeared on 5.10.22

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How much money do you need to make to be considered 'middle class' in the U.S.?

The income thresholds vary widely, but it still feels like these figures just can't be right.

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For many, the American middle class doesn't feel like it used to.

The U.S. middle class has long been a symbol of American prosperity, a promise that freedom, opportunity and hard work will provide your family a reasonably comfortable life, even if you don't strike it rich. In the past, an average middle class family could presumably afford to buy a modest home and take the family on fun-but-not-extravagant vacations. Not living luxuriously, but easily affording the basics, building up some savings and enjoying a little wiggle room in the budget for occasional extras. A nice, secure life.

But the reality of the middle class has shifted over the decades. Not only is the middle class shrinking, according to government statistics analyzed by Pew Research, but many people who fall into the middle class income-wise aren't feeling any sense of financial security. Approximately half of Americans are classified as middle class, down from 61 percent in 1971, and those who fall within middle class income thresholds can often feel like they're barely making ends meet.

When a TikTok user asked middle class families to share how much money they have in savings, the responses were eye-opening. Many middle class Americans say they have nothing in savings, and not for lack of trying. There's always some expense that comes up. Especially for those on the lower end of the spectrum of middle-class incomes, it can feel like living one emergency away from financial doom.

So how much money do you need to actually make to be considered middle class in the U.S.?

To compare middle class household income ranges by state, SmartAsset analyzed U.S. Census Bureau data using Pew Research's definition of middle class, which defines the middle class salary range as two-thirds to double the median U.S. salary. New Jersey came in at the highest range at $64,224 to $192,692 and Mississippi came in the lowest at $35,142 to $105,438.

Here are the rankings in order:

There are even bigger variations between cities. The highest middle class income range in SmartAsset's list of 345 cities is Sunnyvale, California (near San Jose) at $113,176 to $339,562 and the lowest range is Detroit, Michigan at $24,300 to $72,906.

Cost of living varies a lot, as we all know, so it's understandable that middle class income in the Silicon Valley wouldn't be the same as middle class income in the Midwest.



But the differences from place to place are arguably easier to digest than the differences within the ranges themselves. There's an ocean of difference between a household income of $50,000 and a household income of $150,000, no matter where you live. For most families I know, the low end of the income range in my state would be a huge stretch to even live on while the upper end would mean complete financial security. How can the entire range be considered middle class?

Interestingly, the past decade or so has seen middle class income ranges rise dramatically. According to GoBankingRates' analysis of U.S. Census Bureau data, the household income required to be considered middle class increased by 41.67% overall from 2012 to 2022, with Oregon, Washington and Colorado each seeing an increase of over 50% during that time frame. People are making more money, but people also feel like their dollar isn't going as far.

Is that true, though? According to Investopedia, Americans overall are making more money than ever and are wealthier than every by nearly ever measure, even accounting for inflation. But at the same time, more Americans feel poorer. There are several possible reasons for that. One is the surge in housing prices increasing homeowners' net worth without adding actual, spendable dollars to their bank accounts. Another, as Investopedia points out, is that broad averages mask greater disparities between people's wealth—in other words, the rich are getting richer at higher rates than the average American. People also may still feel shaken by the pandemic's economic fallout. That sense of insecurity from an unprecedented global event may still linger in people's minds, making them feel financially unstable even if that's not their actual reality on paper.

And then there's the lens of partisan politics that can color people's perceptions. Half the country tends to see the economy negatively when one party is in power and the other half sees it negatively when the other party is in power. We also shouldn't discount the role that aspirational social media plays, with feeds pushing plush vacations and perfectly curated luxury homes, altering people's expectations of what life should look like.

Of course, some middle class folks really are financially struggling, and again, those lower income thresholds do feel incredibly low for most households. Perhaps it's time to shift the definition of "middle class" to be more reflective of how those incomes are experienced by real families rather than simply a percentage calculation that feels way off from reality.

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