Should You Give Your Child a Prepaid Credit Card?
I remember being 12 or 13 years-old and having my dad drop my friends and me off at the mall. He would often hand me a bill from his wallet – usually $10, but sometimes $20 if he was feeling extra generous – and bid us goodbye for a few hours. We were incredibly happy perusing the sale racks, buying Orange Juliuses, and even grabbing a movie before returning to the pick-up point.
While the obvious difference between then and now is that $10 won’t get you very far in a shopping center anymore, there’s another big change: if you’re a parent like me, you probably rely on your debit card and don’t carry cash very often. Not surprisingly, today’s kids are also leaning less and less on paper money, too.
So, is the solution in this day and age to give your kid their own prepaid debit card? Let’s talk a bit about the pros and cons of introducing your child to the power of plastic.
There are a number of reasons why you may want to give your child a prepaid card, some of which are responsible for our own reliance on the same technology.
Probably the biggest perk of carrying a debit or credit card is the sheer convenience involved. You don’t have to worry about finding an ATM or withdrawing enough cash. If your wallet gets stolen, you can simply cancel your card with a phone call. Most cards have fraud protection, so you aren’t even responsible for unauthorized purchases. On top of that, it’s easy to track and review your spending – no need to pencil those purchases into a check register as you go, when you can download a list of transactions anytime.
These same conveniences are compelling reasons to give your preteen or teen their own card. Do they need money while at a friend’s house? Simply login to your prepaid card dashboard and transfer funds. Want to keep tabs on where your kid is spending their allowance? You can easily track their spending online, day or night.
Being able to manage our own purchases online is a helpful tool. We can download our transactions into a program like Mint, if we want to see exactly how much we are spending in certain categories throughout the month. We can also log in from our smart phone and see real-time account balances, without having to worry about balancing a checkbook or forgetting purchases.
Teaching your child to manage his or her money with a prepaid card is no different. You can sit down with them weekly to go over exactly what they spent and where, and demonstrate how those little purchases can add up quickly. They are also able to see exactly how much money they have left (or have saved) at any given time, enabling them to keep track of their personal finances.
Most of the perks of prepaid cards involve convenience. However, there are a number of downsides to consider before you hand your kid that shiny new card.
It’s very easy to get mesmerized by the power of swiping a credit card and spending invisible money – just ask the average American who is walking around with over $5,000 in credit card debt. When you hand over cold, hard cash at the register, it makes you more cognizant of what you’re actually spending.
If your child is going to have a debit card, you need to be sure that they understand the impact of what they’re spending. Do they earn an allowance? Hand them the cash at the end of the week and make them give it back to you to be transferred to their prepaid account. That way, the money they spend feels a bit more tangible. Force them to sit down and go over their spending at least once a month, categorizing purchases and managing a budget.
Once upon a time, kids had piggy banks. If they wanted a shiny new toy, they needed to save enough of their cash and coins, counting it out regularly until they had enough stashed away. If your child is putting all of their disposable income on a prepaid card, they may not even realize the impact that their not saving actually has.
Requiring your child to put a certain percentage of their money in a safe place may be a great idea. You can also set up a high yield savings account in their name, where they can grow their own wealth while spending their disposable income on the prepaid card. When they get older, transfer them to a checking+savings account with a debit card, and encourage them to regularly transfer to savings.
Depending on your child’s age and needs, there are different financial products to consider.
Pre-teens and young teens (9-13): For your younger children, a prepaid card is a great idea. You can load it with their earned allowance each week or month, then let them manage their spending. Go over their purchases on a regular basis, not just to track their spending but to also use it as a teaching opportunity. Since the card is prepaid, it cannot be overdrawn – when your child runs out of money, the card is declined. This is an excellent chance for them to learn how to spend without overstepping their financial boundaries, as there is no “credit” or “overdraft” safety net. Teenagers (14-16): As your child gets older, it may be a good time to transition to a youth checking account with a debit card. This way, your child gets to have a “real” bank account while still allowing for parental oversight. This is especially helpful as your kid reaches the high school age, and particularly when they begin driving.
They can practice depositing their earnings from allowance, side jobs, or birthday gifts, while spending as needed/wanted on their debit card. The best option would be to choose a checking account that has a linked savings account option. That way, your child can learn to budget their money and even allocate a certain amount to savings each month – a great practice to begin while they’re still young, which they can hopefully continue as they become an adult. Be sure to choose an account where you can also be linked in, such as the Youth Spending Account from USAA or Wells Fargo’s Teen Checking Account. This allows you to still monitor spending, while giving your child a sense of independence and control over their own money.
Young Adult (17-19): By this time, your son or daughter should have picked up on a few good money lessons, but some oversight from Mom and Dad (especially after they head off to college) is a great idea. For your young adults, a joint checking account may be the best idea. You can link it to one at your existing bank, so it’s quick and easy to transfer from your checking account when needed. At the same time, you can still monitor your young adult’s spending (making sure that Timmy isn’t blowing his college book money on frat parties, for instance).
Most of these accounts will also have features like bill pay, which are great learning lessons for your not-so-young one. Teaching them to pay their own car insurance payment each month through the bank’s app, for instance, will not only allow them to be more self-sufficient, but also show them just how quickly money goes.
Whether your child is ready for a card – prepaid, debit, or credit card – depends on a lot of factors. Their age, maturity, and needs all need to be taken into consideration. No matter where they are, though, it’s always a good idea to start teaching important money lessons, like budgeting and saving.
A prepaid debit card can be an excellent method of teaching these lessons, while allowing you to still monitor your son or daughter’s spending.