In most Indian families, children still get their pocket money as physical cash. Though the spread of e-commerce and the proliferation of digital money have changed the way India shops and spends, most children depend on parents to conduct even simple online transactions such as recharging their cell phone accounts or ordering food online. If the best way to learn something is by doing it, your child should start using plastic money. Introducing a child to plastic money can help her understand how these products work and prepare her for the future by inculcating responsible financial behaviour.
At first sight, it might appear risky to give spending power and financial freedom to a youngster. At that impulsive age and with very little knowledge, a person can easily get carried away if all she needs to do is swipe a card. This is where the parent should play the role of a regulatory body. Start by teaching her the basics of plastic money. Tell her that the debit card usage deducts the amount from her bank balance. Explain to her that the credit card company is not a charity – it will send a bill at the end of the month and charge a bomb if you can’t pay in full.
Learning the ropes
Since credit cards are not issued to minors, a child is given an add-on card. You can set a low limit (say, Rs 2,000-3,000) for expenses on that card. Initially, allow the child to make only small monthly purchases, such as meals, filling petrol in the bike or even pay her mobile services bill. Once she is comfortable with the procedure, she can use it for bigger purchases without any supervision.
As a parent, you must also put in place certain immutable ground rules for your teen. For instance, you must clearly tell her that you will monitor the card statement to know how and where it is used. This can help control wayward spending on undesirable heads. Make it a point to regularly review and discuss monthly statements with your teen in a collaborative spirit.
You must also make it clear that she has to pay for the bills herself. As a parent, you might want to bail her out if she has racked up a huge bill. But this generosity will hurt her in the long run if she becomes used to being bailed out. Also, if she is using the credit card, she should write the cheque for the bill. Only when the child pays for the expenses out of her savings will she truly understand the monthly implications of swiping a credit card.
Most importantly, parents need to forewarn their children against fraudsters and make sure they follow the basic rules of safeguarding privacy and avoiding data theft. The child should make it a habit to check and verify the mandatory SMS alert received from the card issuer every time the card is swiped.
Inculcating a desirable credit behaviour
You must also explain how credit behaviour could impact the child’s financial future. The use of credit card creates a credit history of your child’s usage. The credit score of an individual has become more important than ever. A loan applicant with a high score gets better terms—lower interest rates, larger loan size and easy documentation. If your child uses the credit card prudently, she will establish a track record earlier on in life and, by the time she is ready to apply for a home/auto loan, she would have developed a rather enviable credit score.
I have observed that if youngsters are allowed to manage their affairs, they become more responsible. If children are granted supervised control over funds, they will surely internalise the value of money. Nobody learns to walk without falling and your children too may make a few initial mistakes. But its’ better that they learn about these things in their teens, when the amounts are small, rather than in a later years when financial mistakes are likely to result in somewhat more serious and long-lasting consequences.(The writer is Founder & Managing Director, MyMoneyMantra.com)