Prepaid Debit Cards Encourage Spending

The latest wrinkle in allowances is a new generation of prepaid debit cards. Parents automatically transfer money to a child's online allowance account, which the child can access with a MasterCard- or Visa-branded debit card to withdraw money from ATMs or make purchases.

To sweeten the deal for parents, the card might let you track your child's purchases, restrict transactions or even offer financial lessons.

But let's face it: Although the cards are billed as money-management tools, their main purpose is to make it easier for kids to spend money, especially online. "The card that makes cash officially last-century," trumpets the Web site for Visa's UPside card. "Now buy online without asking your parents."

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And even though the cards promote financial independence, parents are still on the hook. "Out of cash but no parents in sight?" asks UPside. "Give them a call and have money loaded on your card instantly."

That's not exactly the way to encourage financial independence. When kids know that Mom and Dad can simply top up the account when they run low on cash, the money isn't real.

MasterCard's Allow card offers a menu of 35 parental controls, which sounds reassuring (if a bit overwhelming). But if you feel the need to impose parental controls, maybe your kids aren't mature enough to handle the responsibility.

And the cards can be loaded with fees that really add up. The Allow card, for example, charges an activation fee of $19.95 and a monthly maintenance fee of $3.50, plus 75 cents each time you reload money from your checking account and $1.50 for each ATM withdrawal.

Parents might use one of these cards as an intermediate step for kids who have already learned to manage a cash allowance or have money of their own from babysitting or lawn-mowing, for instance. But I'd prefer that teens open a regular bank account as soon as they have income from a job. That way, it's their money, not yours, that's on the line. And they'll know what it feels like when the money runs out.

My son has been managing his own savings account and spending money with an ATM card since he got a job as a lifeguard after his freshman year in high school. When he turned 18, I offered to help him open a bank checking account with a Visa debit card. Much to my surprise, he declined. With a debit card, he said, "it would be too easy to spend money."