My 16 year old son got a job over the summer at a local restaurant chain. He started collecting quite a bit of money in his tip outs at the end of each week. I told him that he should start letting his checks go into the bank and spend only his tip money. He reluctantly agreed; but soon realized the tip money was more than enough. He also decided that since he got a job he wanted to upgrade his phone which would cost $45 a month for the phone and insurance. I told him that as long as he was certain he could pay the $45 I didn’t care. (I pay for the service).

About 4 weeks ago I got onto his online banking account and realized there was WAY more debits than there should be since he has cash to spend. I totaled it up and he had spent about $400 in unauthorized (by me)debits. I spoke to him and we talked about how easy it is to whip out a card when you don’t have cash. Then I broke the news…I said to him, “$400 adds up fast over a few months when it’s $5 here and $5-$10 there huh? He was shocked that he spent so much that he was completely unaware of. I told him the right thing to do was to pay it back. He immediately started freaking out! “I don’t have $400!” My response was, “if this was a credit card you’d have to pay it back. And since you spent money on your card that wasn’t supposed to be used then you need to pay it back.” He protested that it was his money. I agreed, however the agreement was that he would only spend his cash. He was really upset with me but agreed he’d pay it back in installments. I told him the longer he took to pay it off the more interest it collects. He replied, “I have to pay interest on my own money!” I told him it was the responsible thing to do. I told him this was a great opportunity to learn how “debt” works. A high risk credit owner usually has an annual interest rate of around 22%. That’s about $88 a year in interest on $400. We sat down and I explained that if he divided $88 over 12 months that equals a monthly interest charge of about $7.35 per month. (I didn’t bother trying to explain that monthly interest rate amount decreases as the balance goes down). I’ll get into that another time.

I told my son stories upon stories of how I constantly over drafted my checking account in my 20’s. No one taught me how to be smart with money. I got my first credit card at 21. I had 3….all maxed out and I was in about $5,000 worth of debt until tax time rolled around and I paid it off and started over. (I was a single mom and I got a lot of money back). I never learned until I got married to a financially savvy guy at 28. He taught me everything I know about investments and, savings, and NOT using a credit card to get what you want. I explained to my son a “need vs a want.” It sank in and he totally started to see the picture I was painting! He went to the bank later that week and paid off all but $170 of the $400. He told me a few days ago That he’s been setting 70% of his tip money aside to pay back his “debt”. I was SHOCKED, he was PAYING ATTENTION!

Next week he plans to pay off the rest (including the interest). I told him…”At least your paying yourself back and not a credit card company right?” His response? “Thank God!!!”

I had him put his debit card in a safe place outside of his wallet so the temptation to pull it out was no longer there. In just 4 short weeks he’s been so amazing at saving money to pay his phone bill due on the 3rd of December and pay back the rest of his debt.

This has opened the door to us talking quite a bit about finances, what college expenses will possibly entail, future household bills etc, interest on cars, homes etc. we’ve talked about debt vs equity. I told him that if I didn’t teach him about wise spending and saving habits he’d have to learn the hard way like I did. Not to say it still can’t happen, but at least he can never come to me and say “why didn’t you tell me about this major part of life!”

Daunting debt