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Teaching Kids Financial Responsibility with Online Shopping
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| Wednesday, February 7th, 2007 | Kristen DiPaolo | CWK Producer |
“They don’t recognize [online shopping] as truly being money. Nothing is taken out of their pockets at the end of the transaction. It’s instant gratification, and the payment generally comes from somebody else, later on down the line.”
– John Ulzheimer, President, Credit.com
Many parents teach kids to budget money with a cash allowance. Yet, kids today are pouring money into things that can’t be bought with cash: online games, ring tones and digital songs. So, is there a more modern way to teach kids about personal finance?
Nine-year-old Ryan Huber has learned to be a savvy online shopper.
“Something that’s a good amount of money in stores - I might try to find it cheaper online,” explains Ryan.
He’s pricing a pair of ice skates. “Too much - a little too much,” says Ryan. “75 [dollars] is not good.”
But Ryan wasn’t always so careful spending money online.
“When he was into, I think they were Pokemon cards,” says his mom Alison, ”and he wanted to get some of them, he would want to pay, you know, 30 dollars for two cards. I didn’t realize that he had already bid on those items on eBay.”
Experts say that, for some kids, buying something by just clicking on it seems like magic… like using fake money.
“Yeah, sometimes, you’ll want to buy a lot of songs,” says Ryan, “and then you’ll lose track of how much money you have.”
“They don’t recognize it as truly being money,” says John Ulzheimer, the president of Credit.com, a financial education website. “Nothing is taken out of their pockets at the end of the transaction. It’s instant gratification, and the payment generally comes from somebody else, later on down the line.”
But with almost half of all teens now shopping online, how do you teach the value of an e-dollar?
“If their allowance is 20 dollars a month - or ten dollars a week - or whatever it may be,” says Ulzheimer, “tell them: ‘you have an option. I can either give this to you in cash, or I can give it to you in some sort of electronic coupon - or maybe a gift card to your favorite store at the mall.’ And you have the choice.”
Ryan earns five dollars a week by doing chores.
Now, when he buys online, he pays his mother back with cash.
“Sometimes my mom will pay a little bit towards it,” says Ryan, “or if I have almost enough to get it, I’ll have to pay it off with chores.”
He’s learned that buying online means paying with cash from his own pocket.
“I’ve kind of held him accountable,” says Alison, “Where he’s like, ‘Well mom, it didn’t work the way it was supposed to’ - or, ‘you know, I really didn’t mean to spend that much money’- and I’ve just kind of held him accountable and said, ‘I’m sorry, you know, you still have to owe me that money.’”
What We Need To Know
- Before making an online purchase, parents should ask kids to consider whether they really need the item. Comparison-shopping is a great idea. However, if someone is offering a price that seems too good to be true, kids should ask themselves why the company is able to offer such a good price. (Todd Mark, Spokesperson, Consumer Credit Counseling Service)
- To avoid getting ‘ripped off’, kids should stick with stores and brand names they trust in real life. Children should research any online merchant they do not know. The company should have a physical address. Very rarely will you find a reputable company that only has a P.O. Box and no physical location. Also, the company should be licensed in its home state. (Todd Mark, Spokesperson, Consumer Credit Counseling Service)
- Do an Internet search for “complain” and the company name, or “rip-off” and the company name. If people have been scammed, they will likely want to warn others. (Todd Mark, Spokesperson, Consumer Credit Counseling Service)
- Only enter your credit card information on secure websites. These typically start with “https:” as opposed to “http:” Also, look for a padlock icon in the bottom right hand corner of the screen. (Better Business Bureau Online)
- Make sure the company offers a phone number for customer service, in case you have a problem. (Federal Trade Commission)
- The best way to pay for items online is with a credit card, and not a debit card. Under federal law, if you have an unauthorized charge on your credit card, your liability is limited to $50. (Federal Trade Commission)
- Many experts seriously doubt whether teens need their own credit card. If you believe your teen is mature enough to handle one, make sure they understand how quickly debt can accumulate. Use debt calculators on various financial websites to show teens what happens if they only make the minimum payment. (Janet Bodnar, financial columnist and author)
- Parents who co-sign for a teen’s credit card can set a low limit. That way if the teen makes a mistake, the bills will not get out of control. Have the lender agree in writing to notify you if the child misses a payment. (Federal Trade Commission.)
- Set ground rules for credit card use. Charge only what you can afford to pay back—a credit card is not free money. Ask your teen to consider each purchase as a loan. Would they really go to a bank and request a loan to buy a sweater or pair of jeans? Have teens pay their bills in full each month. If for some reason the entire bill cannot be paid in full, never pay only the minimum due. (Jennifer Openshaw, CEO, Family Financial Network)
Resources
- Better Business Bureau Online
- Consumer Credit and Counseling Service
- Federal Trade Commission
- Credit.com
