Teen debit cards: What's your take?
Do cards teach kids about responsibility?
I can still remember my first ATM card. I was a teenager in high school when ATM and debit cards first arrived on the scene. I had a passbook savings account with our local bank, and they issued a debit card that I could use to make deposits and withdrawals to and from my account.
Taking money out of my account when the bank was closed was nothing short of amazing. But my ATM card of the 1980s was a lot different from debit and prepaid cards for teens today.
The most important difference was that it was not part of the Visa or MasterCard debit network. When ATM cards first came out, they could be used only at a bank automatic teller machine. I couldn't use the card at a store. And of course there was no Internet, so we couldn't check our account online, either. On top of that, the debit card didn't work with all ATM machines. You had to make sure that the ATM was on the same network as your bank, or the card wouldn't work.
With the advent of the Internet and the Visa and MasterCard debit networks, a whole new generation of financial products was born. And recently, companies have begun using those tools to market debit and prepaid cards and other financial products to teens.
Let's look at a few of those new financial products (some recently reviewed by Smart Money), and then I'd like to hear your view on these products.
The Visa Buxx card is a prepaid, reloadable card designed specifically for teens. The card enables parents to add money online that teenagers can then spend with the card. While the Visa Buxx card is not a credit card, like most debit cards it can be used anywhere Visa is accepted.
Parents can obviously control the amount of money that's put on the card, and they can also monitor spending via the Internet. Visa Buxx claims that the card gives teens financial independence and helps them learn money management by requiring them to manage the available money on the card. Parents can also pay allowance to teens through the debit card's automatic loading feature. Parents can set up automatic transfers from their checking account on a weekly or monthly basis.
As for teaching teens financial responsibility, here is what Visa Buxx has to say:
Using a Visa Buxx card is a first step -- and a big responsibility -- for your teen. When you sign up your teen for their Visa Buxx card, encourage them to take this money-management quiz, as well as review the educational information that is included with each card. Taking the quiz and going over the materials together will help to prepare your teen for the real world of managing a budget and using a Visa Buxx card.
The Visa Buxx card is issued through one of several banks that Visa Buxx has partnered with. There are fees associated with the card, including the following:
- One-time account setup fee is $12 and will be assessed at the time the card is opened.
- A charge of $5 will be assessed to replace a lost or stolen card.
- A $2 fee will be charged for each transaction that loads money onto the card. This fee is typically waived if the card is loaded from an account with the same bank that issued the card.
- An overdraft charge of $20 will be assessed for each transaction which causes the available account balance to overdraw the accrued card funds.
- A charge for ATM cash access of $1.50 will be assessed for each transaction in excess of two within the previous 30 days.
- A charge of $2 per month will be assessed after six months of inactivity.
Bill My Parents
I'll say at the outset that Bill My Parents is about the worst money-management idea for teens I've ever seen. Here's how it works: Teenagers surf the Internet for stuff they want. When they find something they'd like, they can notify their parents electronically through Bill My Parents. The parents can then review their child's wish list, and approve some or all of the purchases. These purchases are then charged to the parent's credit card that Bill My Parents has on file.
The home page for Bill My Parents shows pictures of parents and teens with quotes like the following:
Teen: "Now my mom always knows what I want."
Parent: "What an easy way to make her happy."
Are you kidding me? Maybe an easy way to make her a spoiled brat, but happy? Rather than happy, how about helping her become responsible, dependable, faithful, independent, loyal and hard-working? I think Karlynn Johnston at The Super Mom feels the same way.
Obopay is designed to enable families to make payments to anybody, anywhere, anytime. Funds can be transferred to an Obopay account online from a bank account, debit card, credit card, or at some physical locations. Once the account is funded, money can be transferred from your cell phone to anybody with a cell phone for 25 cents per transaction. You can also use Obopay as a way to accept payments online if you run a Web site or blog. So how does Obopay involve teenagers?
One of the features of Obopay is the family prepaid MasterCard. A prepaid card can be issued to children 13 and over. Parents can then add money to the card for the children to use anywhere that accepts MasterCard. As with most prepaid cards for teens, parents can also monitor spending online.
There are fees for the Obopay family debit card, of course, which include the following:
- $1.95 a month for each card.
- $1.95 for each ATM transaction.
- $10 to replace a lost or stolen card.
Current Card for Teens by Discover
The Current Card by Discover was the first debit card specifically designed for teens that I had ever heard of. I remember, when it first came out, wondering how parents would respond to the card. The Current Card works much like the other prepaid cards mentioned above, but it offers some extra features and has Discover backing the card.
For example, for teens with jobs that offer direct deposit, their paychecks can be added directly to the card. Parents can not only set daily spending limits, they can also restrict the category of purchases the card can be used for (excluding, for example, hotel and travel categories). Card transactions can also be monitored via the Internet.
The card costs $5 per month or $50 per year paid in advance. There is no cost to add funds to the card, and you get four free ATM withdrawals each month. Unlike other cards, there is no fee if the card goes unused for an extended period of time.
A good thing?
My question is whether these new financial products are making teenagers more responsible with money, or less responsible. My concern with these products is that their focus is on spending money, not saving or investing money. I'd like your take on this question, particularly if you've used any of these tools.
In the press, reviews of the teenager-focused financial products have been mixed.
Liz Pulliam Weston at MSN Money believes teen debit cards can teach children to be financially responsible. Because these cards are not credit cards, there is no risk of spending over limits or accumulating interest charges, or a negative impact on a teenager's credit history. Liz also points out the benefit of parents being able to easily monitor how their children are spending their money.
Taking a less sanguine view of debit cards for teens, Janet Bodnar over at Kiplinger's believes debit cards serve only to prime our children for a life of credit and debt. As Janet explains, "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." She also points to the fees associated with these cards.
So what's your take? Do these teen-focused financial products teach our children sound money management, or set them up for a life of living beyond their means?
Related reading at The Dough Roller:
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