The Debt Panel: 'My teenager has racked up $4,000 in credit card debt'

The Dubai resident is seeking advice on how to teach her 15-year-old son financial literacy and prevent him from getting deeper into debt

Steve Cronin, founder of DeadSimpleSaving.com, says it's important to set very clear rules if you decide to give a teenager a credit card. Getty
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I am a female entrepreneur and have a son aged 15. I used to give him a fixed amount as pocket money until he turned 15.

I then decided to issue him a supplementary credit card under my principal credit card account so he could learn financial literacy and manage his budget.

However, in the span of a few months, he has racked up credit card debt worth Dh15,000 ($4,084) by buying expensive shoes, gadgets and online games.

Although I did not initially scrutinise his expenses because I wanted him to learn from his mistakes and give him a sense of responsibility about money, things are getting out of hand now.

Do I need to set up tight rules on limits and guide him on how credit cards work? I thought this was taught in schools.

He also hides the monthly credit card statements from me so I am unaware of his expenses and gets his father to pay the bill instead.

I am also worried that unpaid bills on this supplemental credit card will affect my credit history. Please advise. RK, Dubai

Debt panellist 1: Steve Cronin, founder of DeadSimpleSaving.com

It is great that you have decided to teach your son about practical financial literacy while he is still fairly young.

Unfortunately, he has already shown that he cannot use the card responsibly, so the “hands off” part of the experiment has to finish now.

It’s not clear what his monthly budget is, whether you communicated how much it was to him or the consequences of exceeding the budget.

These consequences would be both from the bank — him having to pay off the full amount each month or face late fees and interest — and from you, such as cutting up the card in front of him.

It’s also not clear if you set a limit on his spend per month or even an overall limit on his total spend other than your own card limit.

I agree with you not scrutinising his expenses, as he should be able to spend his money on whatever he wants within his budget.

However, the card statement must go to you each month, preferably electronically so it cannot be hidden, and then you can forward it on to him.

Your son hiding the statements is a breach of trust (and, frankly, possibly an admission that he knows what he is doing is wrong).

Getting his father to pay is also not acceptable, especially if this is a way to play parents against each other.

You should discuss the right approach with his dad and set clear rules for card usage and payment. The card is on your account rather than his father’s — unless you want your child to be spoiled, it’s probably best to keep it that way.

You mention card debt rather than card spend. If the balance hasn’t been paid off in full for the month, then any debt building up is completely unacceptable.

Credit card usage is not taught in most schools, nor any other aspect of personal finance. If only these useful skills were taught! Trigonometry can wait.

You, therefore, do need to set some very clear rules, explain them clearly and teach your son in detail how credit cards work.

He has a big incentive to learn about this, as his card access depends on it.

You should also be very clear what the consequences of breaking these rules will be. You must stick to these consequences if he is to learn, even if he becomes angry and compares you with his friends' more lenient parents.

I suggest a limit decrease for minor mistakes, such as being a day late in paying, and escalating it to cancelling the card if he cannot stay within budget after three months.

You should also have zero tolerance for evasive antics like hiding statements or getting his father to pay for excess spending that hasn’t been pre-approved by you.

Reassure him that you will not be looking at the itemised spend on the card statements and that all you care about is staying within budget and paying on time.

Your credit score is most definitely affected by his actions, as he does not have his own credit score. You have kindly given him a powerful tool — for your own sake as well as his, teach him how to use it wisely.

Felicity Glover, personal finance editor at 'The National'

I believe that both parents and schools have a responsibility to teach children financial literacy skills and it should be a mandatory topic in all curriculums.

Clearly, your son is not ready for the responsibility of having a credit card, does not understand how they work or how to use one.

It also worries me that he is already hiding statements from you, as well as racking up a Dh15,000 debt in such a short time.

Quote
You should also have zero tolerance for evasive antics like hiding statements or getting his father to pay for excess spending that hasn’t been pre-approved by you
Steve Cronin, founder of DeadSimpleSaving.com

As brutal as it sounds, my advice would be to cancel the credit card immediately and sit him down to explain why.

There are plenty of other options for parents to give their children pocket money these days, none of which involve a credit card.

Some banks in the UAE have already introduced digital banking options for children aged 8 to 18 to encourage responsible spending and saving.

For instance, ADIB launched its Amwali digital bank last year, while Emirates NBD has Liv. and Mashreq has its Neo option.

A number of FinTech start-ups in the UAE have also introduced a range of family banking and financial literacy apps to equip children with the tools they need to earn, save and spend responsibly in real time.

Parents remain in control as the primary account holder and can transfer pocket money to their children's subaccount, which allows them to put away money for their savings goals or to spend it as they wish.

All of these options come with personalised debit cards — but best of all, there is no credit involved.

Instead, children have a certain amount of money to spend each month and once it's gone, that's it. It is then up to you to decide if you will transfer more money if they overspend.

Smart money skills are vital for children — and parents, for that matter — to learn.

Unfortunately, it's never been a priority for schools but this attitude is beginning to change and there are now financial literacy courses that are aimed at children and teenagers to help them learn how to be fiscally responsible.

This is also worth checking out for your son.

The UAE government also changed the UAE labour law and children aged 15 and over are now allowed to work part-time.

This could be a great way for your son to learn how to manage money — and contribute to paying off that Dh15,000 debt he's racked up in your name.

The Debt Panel is a weekly column to help readers tackle their debts more effectively. If you have a question for the panel, write to pf@thenational.ae

Updated: September 28, 2022, 5:30 AM
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