Teaching children financial discipline

For most parents with school-aged children, this is the time of year when daily and weekly allowances are negotiated. In some cases, the allowance not only covers the cost of lunch and snacks in school but also clothes and manicures for girls and movie dates for boys.

"Giving children allowances is a good way to instill financial discipline," said Lilia Alim, who has given her incoming first-grader a piggy bank with her favorite bear on it. "My deal with my daughter is that she puts half of the allowance that I give her in the morning in her piggy bank. At the end of the day, whatever money she hasn’t spent should also be deposited in her piggy bank."

Like Alim, Rona Tanedo’s two teen-aged children brown bag their school meals. They don’t, however, receive allowances. What they get is a small amount every weekend which they can either spend immediately or save up to buy something they like.

"I don’t believe in giving children too much money. It can be quite tempting as they are too young to be financially responsible. But with little cash and a lot of parental guidance, I am confident they will grow up to be better cash managers," she said.

For example, it is Tanedo’s daughter who takes charge of supermarket purchases. "I have a weekly supermarket budget of P3,000. Whatever change there is after everything in my list has been purchased is hers," said Tanedo. "To make sure there will always be change, my daughter has learned to compare prices and to look for bargains. There’s also less wastage because she has made it a point to regularly check our pantry to see if there is a need, say, to buy another bottle of soy sauce if the supply is good enough for another week."

Flashing the plastic

Allowances are occasionally augmented by credit cards when the child goes to college. Depending on how negotiations go, the parent can opt to assign their children spending money through a credit card or advice the teen-ager that all expenses will be on his account, to be collected by mom or dad when the bill arrives.

Catherine Villanueva recalled her father gave her a supplementary card when she went to college. Her deal was she could spend as much as P500 a month and charge it to her parents. "I was a voracious reader and I used my extra P500 to buy books. Anything in excess, I had to pay for out of my allowance. On my birth month, the credit limit would be doubled so I could buy more books or treat my friends out."

With no regular income except their allowance, however, most teen-agers end up having to ask their parents to advance their share of the credit card billing for the month. This has often given parents the excuse to temporarily suspend the teenager’s charging privileges.

Another way to instill financial discipline in a teen-ager is to give him/her a supplementary card. "As the primary cardholder, you can monitor your child’s spending…not just the amount but also the places he frequents," said Citibank vice-president for cards category Bea Teh-Tan.

Citibank issues supplementary cards to dependents as young as 16 years old. For Citibank Visa Platinum cardholders, they have the added advantage of setting spend limits for their supplementary members. "If the husband is the primary cardholder, he can give his wife a higher spending limit than his children. Among his children, depending on who’s the eldest or the favored one, he can also discriminate," said Teh-Tan.

For most credit card companies, the earliest age they will issue a card a primary card to the young is 21. Within the 21-29 age group, the chargeable segment or those who earn at least P10,000 a month total between 1.5 million and 1.8 million.

"This is the segment that has the highest rejection rate in card applications," said "We not only look at their monthly income but also their spending patterns to determine if they are potentially good payers," said Teh-Tan.

Citibank’s entry in this market segment is called Citibank Clear. To make it easier for the young cardholder to meet his payments, the card renewal fee is not charged annually but is paid at a monthly rate of P90. Discounts are also given when purchases are made in youth-oriented merchant stores such as Nike, Bayo and Swatch.

As the young cardholder learns to budget his expenses and to establish a track record of repayments, the credit limit is slowly increased. And with the higher spending power, the young man or woman has truly entered the world of plastic currency for which his parents have prepared him for.