Teach kids to spend their way to wealth! Every year I start reading, thinking "what the heck??!!?!", then remember it's April Fool's Day.
-- Reader email, April 1, 2015
Rest easy. We're not really offering a credit card that charges children an interest rate of 7% plus their age. Or a card that charges an annual fee of $500 if you don't spend at least $1,000. We're not backing a card that charges escalating prices on bling. Nor are we rolling out a card that you can order in the shape of a cheerful octopus. (Though that last one sounded kinda fun to us, despite the swipe challenges of a multi-tentacled magnetic strip.)
As many of you guessed, it was all just our celebration of The Motley Fool's de facto annual holiday, April Fools' Day.
Every year we take a time-out from our regular programming in an attempt to amuse (as well as educate and enrich) individual investors. So, you can safely ignore our inane suggestion that you should get kids borrowing early. We really, really did not mean it when we said, "you can't become a millionaire without first learning how to act like one."
Real-Life Card Tricks
We wanted to call attention to the sort of tricks and ridiculous fine-print terms and fees many credit cards inflict upon customers. You've probably heard of -- or unwittingly paid -- fees for things like:
Using an ATM
Talking to a live customer service person
Checking your balance
Not using your card for 1-3 months
Purchases that require a signature
Adding money to a pre-paid card
Failing to use direct deposit to fund your card
Withdrawing more cash than is allowed during a specified period
Cancelling the card
There are some truly terrible cards. Many of the worst are pre-paid debit cards, and some of them actually do target young people.
Have you heard of the Kardashian Kard? Perhaps not, since it was yanked from the market after only 250 people had signed up because it was too awful. The "kard" would have charged absurd fees on a million things from ATM inquiries to customer service phone calls.
The Kardashians are hardly trailblazers on the celeb prepaid card red carpet, which has included Justin Bieber, Magic Johnson, and even personal finance guru Suze Orman.
It certainly doesn't help matters that lenders are able to peddle prepaid plastic on prime real estate -- college campuses.
Should You Give Your Kids Credit?
As much as you try to limit your child's exposure to usurious interest rates and over-stated rewards to get them to spend more, eventually they will be exposed to credit. That's not necessarily a bad thing: Used well, credit and debit cards can be a boon to help young people establish credit histories -- ideally good ones -- that can help them in the years ahead. However, used irresponsibly, credit cards can crush Junior's future financial footing.
Here are some tips to help you help your youngster start off on the right foot:
Decide between credit, prepaid or debit cards: A debit card offers many of the same perks as plastic, but it doesn't allow spending to get out of control. A student credit card helps your child begin to build a credit history. Because of the built-in credit-line limitations of student cards, Junior can get some practice using plastic with some stop-gap measures if things go off the rails.
Consider the pros and cons of co-signing: Decide whether you want or need to be a co-signer for a card. Remember that co-signers will be on the hook for any bills the college student doesn't pay, and their credit record could potentially take a hit if the credit isn't managed responsibly.
Set ground rules: Explain to Junior what he or she can and can't charge -- reviewing categories such as books, pizza, travel expenses, concert tickets, and tattoos.
Scare the pants off them about the ravages of revolving debt: For example, if they charge just $1,000 on a card with a 21% interest rate and make minimum payments of 3% (or $20 a month), it will take nearly seven years to pay off the debt, and they will pay more than $800 in interest.
Point out fees that should be avoided: Such as those for exceeding a credit limit or paying bills late.
Stress safety: It's important to keep cards in a safe place and not charge online in an unsecure environment where card data can be stolen.
Remind your little lovely that this is part of their permanent record: As your child is building credit, all of his or her good deeds and bad ones will be recorded for posterity in his or her credit file. These first years of credit use can go a long way toward establishing a stellar history of money management.
Have "the talk" with your children about how to handle their finances and to be skeptical of advertisements featuring sparkles and koala bears and escalating interest rates and fees. If you're looking for a good place to start, here's a short primer. For some background on how to choose a credit card that's right for your needs, check out "The Best Credit Card Ever."
Did You Fall for It?
And now, a few of our favorite email responses:
- I must comment on the Kiddie Card program. I think it´s embarrassing and I think it will hurt the credibility of MF. By giving "up to 10 and 15K" of credit/debt to children you are NOT teaching them how to handle money, but getting them into problems earlier in their lives. To be honest, it is SHAMEFUL. It makes me sick, and I can´t even think of a correct salutation to finish this email.
- The card idea is very irresponsible and the video showing the mother using 1 card for every kid-doesn't mention how far deep in debt she is does it.
- Can I get a Kiddie Card for my cat, Poopsie? She is only 2 years old, and boy could I use that 9% interest instead of the 28% I'm paying now.
- I can see the KiddieCard dovetails nicely with one of my favorite phrases, "The more you spend, the more you save!"
And a number of Fools took the time to fill out the questions in Kiddie Card's whimsical application form. We were delighted to hear from children of all ages, not to mention surrealist gamer "WolfSlayer5000" who put down "age is just a number."
Choose your rewards gift.
- iTablet McIntosh Pad
- Preventative nicotine patches
How did your child invest their most recent Tooth Fairy gift, Christmas money, or Chanukah Gelt?
- Virtual Horse Breeding Center
- After taxes and fees, all he had left was enough to buy a stick of gum
- Enron stock
What is your child most interested in buying with The Kiddie Card™?
- 4 acres of land in the Yukon
- Larry McClosky's company
- Minecraft theme park
- How to Brat Proof Your Dad, volume II
- Magic the gathering and Yankees tickets
- Mail-order fiance
What would make The Kiddie Card™ even better?
- If a friend could also use the card
- Make it smell like cotton candy
- If they could learn financial reality-when the repo man comes for their PlayStation.
- Reward system that helps with potty training
- First edition Gutenberg Bibles
- Baby Dinosaurs
- An upfront cost of $3,000 to help babies build credit by paying off the fee in perpetuity.
- I really need, I mean he really needs it, to work in more international locations, especially the Caribbean.
- It would be great if we could pay off our balances each month with Fool Coin! (I have not seen any quotes on Fool Coin lately -is it still really volatile?).
- Virtual pet bucks. I should be able to purchase a virtual house, food, toys, clothes, and pet sitter for Fluffy.
- The 10000 limit is way low. Tack on some zeroes, and make all infants heroes!
- Support for Apple Pay
- Hundred and 50 annual fee
- Lower rates
- Lower interest rate
- Lower interest rate
- Higher interest rate