- A new website or "service" gives anyone "virtual credit," but the service's main target is kids
- Parents need to decide if this a good idea or not, and be aware your child may be using it
- Good idea or not, the service raises few legal issues
- There are alternatives to teaching your child good money management skills
You've heard the saying, "money makes the world go round." When you think about it, it's "credit" that keeps things turning. Used wisely, credit is a powerful and useful tool. Used unwisely, it leads to financial disaster.
A new website unveiled in February 2010 makes some credit easy for everyone, and that may be a problem for some parents.
Kwedit gives anyone the power to buy virtual or online goods and services either by:
- Paying Directly. This is when you "pre-pay" for "Kwedits" to use online later. With Kwedit Direct, you can go to a 7-Eleven store, mail cash in a pre-paid envelope printed at your computer, or "pass the duck" by having a friend or family member to pay directly with a credit or debit card.
- Promising to Pay. With a Kwedit promise, you get the virtual goods or services immediately in exchange for your simple promise to pay the money later. Again, you can pay later by visiting a 7-Eleven, mailing payment, or passing the duck.
You can't buy food, candy, or clothes with Kwedit. Rather, it's for things like online games, such as FooPets, where you buy imaginary pets and feed and care for them by buying imaginary food and vet visits.
With the "promise to pay," you start out with just a few dollars of kwedit. As you keep your promises to pay, you're able to borrow more and more on your promise, and you even start building a "kwedit score."
Kwedit screams "kids," from its cutesy name to the types of goods and services you can buy with your credit. Even though adults can use it (yes, there are adults who play online games and don't have credit cards), the site admits it's designed for children 13 and older. And despite it's self-description as being a teaching tool, there are concerns.
Is it a good idea to let a 13 year old buy things online on a promise? Does giving her the option of "passing the duck" to you or another adult really teach her anything about credit and money management. These are questions only you can answer.
A big concern should be the fact children can use it without their parents even knowing about. Children can simply make a promise to repay, print out the voucher, and take it to 7-Eleven or mail it. What happens when they've racked up more than a few dollars in promises-to-pay and then want to "pass the duck" to a parent?
More likely than not the parent will agree to pay. And if for some reason the parent's credit card payment is late, that $5 bag of virtual dog food costs him $40 in late fees and a negative entry on his credit report.
Is Kwedit legal? It's a good question, and the answer is, "yes," probably. Oddly enough, Kwedit launched in the same month a new, broad-sweeping credit card reform law went into effect. And, oddly enough, this new federal law focuses a lot on young people, particularly those between 18 and 21 years old. Under the Credit Card Accountability, Responsibility, and Disclosure Act, or the Credit CARD Act:
- Anyone under the age of 21 needs to show proof of income or have an adult co-signer before he can get a credit card
- Credit cards can be issued to persons 21 years old or younger only if they submit a handwritten credit application form
- Unless authorized by the individual, credit card companies can't send pre-screened, unsolicited offers of credit to people 21 or younger
Does this apply to Kwedit? Probably not. First of all, even though Kwedit may be extending a "line of credit," it isn't "real" credit. It can't be used in the real world to buy real things. There are no late fees, interest, or penalties to pay. Kwedit isn't a bank or financial institution covered by the CARD Act. And Kwedit in no way impacts anyone's credit score.
Perhaps most important, there's no legal obligation to honor a Kwedit Promise to pay. As a general rule, children under the age of 18 can't make legally binding contracts, like an agreement to pay a debt. And even adults can't be forced to repay on a promise. Kwedit recognizes this, too. With a credit card company or bank, however, you have a legal obligation to repay what you borrow. If you don't, the company or bank can sue you.
You may like the idea of Kwedit and think it's a good way to teach your child how to manage money and how to build and keep good credit. If so, remember to talk to them about using the site responsibly.
If you're not a Kwedit fan, the first thing you should do is talk to your child about Kwedit and explain why you don't want her to use it. News travels fast in the pre-teen world, so your child may know about Kwedit even if you're just now hearing about it! As for teaching tools, use your imagination. There are all sorts of ways to teach money skills:
- The tried-and-true "allowance" is a favorite. Unlike Kwedit where they may get something for nothing, children learn a lot from having to do household chores to earn money. They learn how to spend wisely and save, too. Once the allowance is gone, they have to do the chores and wait for the next pay day
- Pre-paid debit cards let you control how much your child can spend and lets her decide how fast to spend it and where. These are a good for kids who play games online and parents who don't want their child to have their credit card numbers
- PayPal lets you deposit money into an online account that your child can use. It's easy to track purchases and balances, too
Money and credit skills are very important lessons, and ones best taught as early as possible so they become life-long habits. Finding the best way for you to teach and for your to learn these skills isn't always easy, but it's well worth the effort.
Questions for Your Attorney
- Doesn't Kwedit have to get parental permission before it interacts with my child in any way?
- Would you recommend investing in a service like Kwedit?
- My 17-year-old son is getting credit card offers in the mail, even though I've requested his name be removed from the mailing lists. What can I do now to stop the offers from coming in?