Money Smart Kids
Say 'No' to Debit Cards for Teens
If you want to teach your kids about managing money, stick with cash.
By Janet Bodnar, Editor, Kiplinger's Personal Finance
March 10, 2009
Even as consumers try to unload credit-card debt -- and card issuers try to unload high-risk borrowers -- some banks are still trying to get teenagers hooked on plastic.
"Call it plastic on training wheels!" chirps the press release for the new Current Card by Discover, the latest debit card aimed at "kids, tweens and teens." I've never been a fan of these cards, and I like them even less given the current economic climate.
The idea is that parents deposit money in the card account, which the kids can use to buy stuff or make withdrawals from ATMs. The cards tout selling points designed to appeal to parents. "Unlike cash," says the press release, "the Current Card gives teens a better way to track and manage their spending while developing smart money-management skills."
In addition, parents can monitor spending online or via e-mail, set spending limits and block certain merchant categories. Sorry, but I'm not convinced. Here's why.
Debit cards encourage kids to spend. Despite their lofty goal of teaching young people to manage money, they really make it easier for kids to spend it. With the Current Card, for example, teens are eligible for "members-only" in-store coupons and online discounts when they use their cards at select restaurants, movie theaters and other "teen-friendly merchants."
To kids, plastic is plastic. These cards aren't credit cards, but young people don't draw a distinction. To them, any plastic is magic money that's meant to be topped up by Mom and Dad when it runs out.
Parental controls are overrated. Letting children make choices about how to spend their own money is a good thing (see Dear Sasha and Malia). But parents don't need to know whether the kids choose to eat at McDonald's or buy a pair of jeans. You certainly don't want them to buy things that are inappropriate or illegal. But if you're worried they'll spend money on Internet porn, they shouldn't have a card in the first place.
The fees are high. The Current Card levies a monthly charge of $5, or $50 a year. That's a lot to pay to track your kids' allowance when as adults you can get a checking account for free or a credit card with no annual fee.
I have always recommended that kids be given a cash allowance, and that goes double now that cash is cool again. There's nothing more real to a kid (or an adult, for that matter) than paying with hard currency and taking a direct hit to the wallet.
If you really want your teens to enjoy some of the convenience of plastic, you can always arrange for them to have an ATM card with access to a bank savings account. That's how my son managed his money throughout high school, depositing his paychecks and making withdrawals when he needed cash. When he turned 18, I offered to get him a real debit card. He declined. "It would be too easy to spend money," he told me.
Reader Comments (8)
Posted by: Jeff at 03/10/2009 11:29:18 PM
I couldn't disagree with the author more about this issue...We have two teenage daughters who we obtained Wachovia VISA Buxx cards for many years ago. The primary purpose was for travel -- such as one daughter just went on her high school band trip to Hawaii... She could take a minimal amount of cash plus the debit card (rather than traveler's checks). We can add money to it online as needed (transfered from her own savings account). There are no monthly fees and only a $1.50 or $2.00 fee for adding money to the account. It has worked out great -- over about six or seven years and counting. The kids don't really care about using them in normal circumstances. When they were younger we would put the cards away except for special circumstances -- like for Christmas shopping. Now they're old enough to keep them in their wallets but still seldom use them. Yet they still have access to the money in the event of an emergency. Again, I simply don't understand the premise behind your opposition -- especially if the children are reasonably mature and responsible. Anyhow, that's my two cents on the matter.
Posted by: Martha Keating at 03/11/2009 10:03:05 AM
I disagree with Janet's take on "plastic" for teens. We started our teen at 13 with a debit card linked to his own checking account (with his own savings account for overdraft). But I turned out to be the one checking the balance and reminding him to make deposits from his petsitting business. Once he started driving however,there were too many expenditures for food and paying for friends with this "limitless" account. Now that he is 17, we have recently switched to a Visa Buxx account (a rechargeable cash card)and I wish we had used it to begin with. A set allowance is deposited automatically on the first of the month. He has to pay all of his expenses and if the card runs out, it runs out. No overdraft coverage. And, because he can keep whatever is left over he has become downright miserly in his spending. Unlike cash, a lost card can be replaced. We both get an email when he uses it, and it helps to see in real time where the money is going. Trips to the coffee shop are now few and far between.
Posted by: Philip Heckman at 03/11/2009 06:14:31 PM
Hey, Janet, if concerned parents aren't up to the task of teaching their teenagers to use a debit card responsibly, who else is gonna do it--and when?
Posted by: Suzanne Sikkelee at 03/12/2009 09:30:10 AM
Our small community bank (Citizens State Bank, New Baltimore MI) offers a teen money management program (savings account, checking account and debit card) which has been very well received by parents and teens. We stress emphatically the need for parent involvement to teach teens how to use 'plastic' responsibility before they go off to college where they are inundated with credit card offers (and often get themselves into deep debt). Our checking account waives overdraft fees if the teen comes into a branch for 'counseling' to learn how to manage/balance their account. Parents tell us that our teen checking account and debit card provide a framework for the parent to teach responsible use of bank accounts and cards, and we have experienced active parent involvement. I would encourage any parent to use these products.
Posted by: Tony Pe3trillo at 03/12/2009 05:49:36 PM
I have to join the chorus of strongly disagreeing. We had a no cost Debit card attached to each of my kid's accounts. Those accounts were linked to my checking account. I would review activity every week at least 2 or 3 times. When they incurred a charge for ATM use and only with drew $20., we talked about it. A cheap, $1.50) way to learn an important lesson. When there balance was down a large amount, I reviewed what they had spent and why that was now their balance. Two years out of college, my son still only uses a debit card. He doesn't like spending money he does not have. My 19 year old daughter knows how much she has in each of her accounts, she decided to have another account, also cost-free, so she would have a rainy day account. Wer told each of our children that we would pay college tuition and expenses, give them a weekly allowance, now $50. and the rest was up to them. If they wanted something special, they could see how much they had and figure out if it was worth it. Amazingly, I sometimes find myself saying, splurge a little, treat yourself well.
Posted by: Tom at 03/13/2009 02:36:43 PM
I don't know what I'd do without VisaBuxx. My 3 kids are all over the country and I can load money on their cards within minutes whenever needed. Also, every dollar I put on Visabuxx is put on my Visa card, earning me airmiles. Have you figured out a way to earn airmiles for giving your kid an allowance? Thought not. It's not a foolproof way to track your kids' spending, but it's better than nothing. Visabuxx doesn't charge any monthly or annual fee, either.
Posted by: Janet Bodnar at 03/13/2009 03:10:36 PM
Wow! This is Janet responding to all of you and thanking you for your thoughtful comments. You've given me enough for more follow-up columns. Here's a preview:
To Jeff: Travel is one situation in which these prepaid teen debit cards can make sense. But you really hit the nail on the head when you said your kids have to be "reasonably mature and responsible," which is often not the case with younger teens (see Martha's comment below).
To Martha: Seems to me that at age 13 your son wasn't ready for any kind of plastic card. But four years makes a huge difference in a teenager's life, and by age 17 he was "reasonably mature and responsible," as Jeff would say.
To Phil: Phil, I'm all for parents teaching their kids responsible money management, with debit cards and everything else. I try to give them advice on the best ways to do that (see my column archives), based on my experience with hundreds of parents and kids over the years.
To Suzanne: Now this is the kind of debit-card program I like. It's a real checking account with a real debit card, so kids are presumably using their own money instead of being funded by their parents. This is the kind of account kids need to learn to manage before they head off to college. My own three college kids used checking accounts with a debit card (no credit cards), and it worked out just fine. They managed their own money and didn't overdraw their accounts. When the older two were seniors they applied for credit cards just before they graduated. The youngest, a college sophomore, doesn't have a credit card and doesn't need one.
To Tony: I think there's a bit of confusion about what I mean by "debit" card. The type of card I wrote about in my column is sometimes known as a "reloadable" or "prepaid" card. The idea is that parents can transfer money to the card for use by their kids. I can't tell you how many kids have asked me, "What's that card that my parents can top up when the money runs out?" That's not how to teach your kids to manage money, and it's one big reason why I have reservations about these cards. The cards I like better are what you might call "standard" or "traditional" debit cards that are linked to regular checking accounts (see Suzanne's comment). Sounds like this is what you had. Bottom line: I think kids need to learn how to manage cash first, followed by a regular checking account with a debit card, and only after that a credit card.
Posted by: Joseph at 10/29/2009 05:16:03 PM
Janet, I would like to say that teaching kids how to handle money has nothing to do with cash or cards..... Its all about the understanding of currency and the outcome of knowing or being taught smart financing. Its annoying when single individuals give inadequate and useless comments about what they themselves dont understand. Does a kid know about the dangers of playing with fire by their parents giving them fire !? No, They are in conversation about the dangers and outcomes of doing so.... If you are taught lessons and given examples of the possible out comes of spending money unwisely by parentes and teachers at a young age we will start to have better understandings at a earlier time in life. We all learn on the go with real life situations in the real world, ones up bringing as well gives children a different way of looking at money as well. Cash can be dangerous when carrying and debit cards can be safer at times and also gives one opportunity to get refunded if lost or stolen when reported in the correct manner. I believe the debit card gives a more realistic and modern way that our currency and economical system operate in the world today. " If you have a weight problem and healthy enough to exercise to get in shape , but decide to have different types of surgery to accomplish it, it does not mean you understand the process of loosing weight the hard way! There are times that we must learn on our on, that is the beauty of it all. As long as our kids are educated about the wonderful pleasures and responsibilities of spending and saving they will be just fine :)