After several years in and out of jail, my 28-year-old daughter has completed a drug rehabilitation program and has been clean for eight months. She’s never had a bank account, has never had an apartment, has never owned a car and has pretty much no money-management skills. She just got her first job (as a cashier), and I want to celebrate her progress by helping her establish a good credit history. I’ve been thinking of adding her as an authorized user on my account, but giving her a really low credit limit. My wife thinks I’m crazy. Am I? Even if I set my daughter’s limit at, say, $300 (so she can buy food), am I taking too big of a risk? And do you have any advice for helping my daughter get on the right track?
First of all, let me applaud you for realizing that your daughter needs support in getting her life on track. You’re absolutely right that you can play a big part in structuring her steps toward self-sufficiency.
Now, I’m not an expert on addiction, so do keep that in mind as you read the following. But from the sound of it, all your daughter has experienced in her adult life is a series of defeats. So as you think through how to best assist her in acquiring basic financial skills, think about how you can help her experience lots of small victories. The more your daughter gets the experience of setting a goal, however small, and accomplishing it, the greater the chance that she will begin to feel more empowered and in control of her life.
Now, is helping your daughter get a credit card the best place to start? I’m not so sure. First of all, it’s terribly easy to overspend with credit cards pretty much everyone does it! If your daughter is an authorized user on your credit card and spends more than she can pay (or fails to pay entirely), you’re stuck paying the bill.
It sounds like you’ve already figured this out and are planning to set the credit limit low enough that you can pick up the tab, if need be. However, this doesn’t really resolve the issue. If your daughter charges more to the credit card than she can pay back, it creates a conflict between the two of you. Moreover, it’s yet another situation in which your daughter experiences defeat yet another time she failed to follow through and disappointed the people near and dear to her.
Instead, consider helping her develop money management skills by creating situations where you tie rewards to small victories. If your daughter has never had an apartment or car, there are many, many things that she needs just to set up her own household. The best way to help her is to show her how to plan ahead to acquire these things over time.
For example, consider creating a joint savings account that requires a signature from both of you to withdraw money. Then have her commit to putting a certain amount into the savings account from each paycheck. If you want to sweeten the deal, offer some kind of reward when she reaches a certain savings goal. For example, you could contribute a small dollar amount for every $100 or $200 she saves (or even match the amount, depending on your finances).
This will be your savings account together, but she can determine beforehand what she would like to save for, be it a piece of furniture, a TV or, a down payment for a car. Make a list together, and when she reaches the target amount in the savings account and meets her first goal, you can help her move on to the next item on the list.
Yes, it’s also important to help her establish credit, but you’re better off opening that chapter a little further down the road, once your daughter has acquired basic experience with setting financial goals and accomplishing them. Ultimately, good money management skills require the ability to delay gratification, and credit cards usually have the opposite effect on people they often make us rush into purchases when we should have waited.
When your daughter is ready to get her own credit card, the best way to start out is not to make her an authorized user on your credit card, but to help her get a secured credit card. For a security deposit of $100 to $300, depending on the card, she can get her own credit card with a credit line secured by her own money. This will be much more helpful to her and create a situation in which she is in control and directly responsible for managing the account.
But again, initially, you’re better off looking for all the opportunities you can find to support actions that have positive side effects. This is a simple way to help your daughter grow in self-confidence. It will teach her that she can indeed set goals and accomplish them, and perhaps, over time, help her get in touch with her unique passion in life.