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Student credit cards and young credit

Considering a card for your child’s allowance? Here are your options

Nothing can teach children the value of money like good old cash – but if you want to go with plastic instead, we have you covered

Summary

While experts maintain nothing teaches children the value of money like good old cash, there are plenty of new options, including bank accounts for teens and app-based tools, to use plastic for your child’s allowance – and teach them money lessons along the way.

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Chances are, when you received an allowance, it was in the form of cold, hard cash.

But today’s parents have a choice: paper or plastic?

Products like Current, FamZoo, goHenry and Greenlight aim to digitize the allowance by letting parents to load it onto a spending card. Some of these solutions also offer apps to help children (and parents) budget and track spending.

Regardless of what method you use, teaching children about spending with cards as well as cash could be helpful, says Patricia Seaman, representative for the National Endowment for Financial Education.

“We need to be teaching our children about money digitally because that’s how they’re handling it,” she says.

But the method comes a distant second to what’s truly important and effective: Regularly conversing with your children about money, according to experts.

“You just can’t expect children to figure it out,” says Kit Yarrow, consumer psychologist and author of “Decoding the New Consumer Mind: How and Why We Shop and Buy.”

“There’s no app that replaces your guidance.”

If you’re considering using plastic for your children’s allowances, here are a few points to consider:

See related: Poll: 8 percent of U.S. parents have children with credit cards

1. What will the card cost?

“If the card has fees, what are they and are they acceptable?” says Seaman.

There’s a lot of competition in the field. A little research should help you find one that meets your needs in the fee department, says Bruce McClary, vice president of communications for the National Foundation for Credit Counseling.

If the card you like best has a monthly fee or recurring charges (like reload fees or withdrawal fees), will you or your child cover those?

Also look at whether the card levies fees on smart-consumer behaviors – like checking balances, getting paper statements or calling a customer service rep when there’s a problem.

2. What happens if the child loses the card?

Children and money are a crazy-making combination. If you give a child money or plastic, sooner or later, they’re bound to lose it.

Ask about the safeguards the issuer offers if or when it happens, says Seaman. Can you turn off the card? Do you have to cancel it? And if someone else accesses money, what protections do you have?

With a regular debit card, federal regulations protect all but the first $50 if you report the card missing within two days of discovering its loss – and that drops to $0 if you report the loss before anyone uses the card.

Let your children know how important it is to tell you if the card goes missing, says McClary. Make sure they understand it’s a mark of sound financial judgement, not an option that’s going to bring punishment.

3. Do you want spending controls?

Some parents choose a digital allowance to teach children how to navigate finances digitally. Others want to keep a digital eye on what – and how much – their young ones spend.

Consider those features when choosing a card, says Seaman.

And if you’re watching your child’s spending, it’s a good idea to let them know that, too.

4. Look at how cards meet your security needs

If you’re linking accounts or sharing financial information, it’s reasonable to have a concrete understanding of how card issuers protect and store that data, says McClary.

You also want to give the children a lesson in digital security, he says. Establish some ground rules:

  • Never share accounts, cards or passwords. Those moves can mean your child takes the loss if someone steals their money.
  • Never access accounts or make purchases from friends’ devices, public computers or public Wi-Fi.

And consider designating one home-based, password-protected computer as the only place children access their accounts or make purchases, McClary says. That way, the adults remain the gatekeepers of digital security.

See related:  How to protect your cards and accounts online

Children’s allowances: Card + app options

Current

The basics:

  • App with a Visa debit card for teens that parents fund from their existing bank account.
  • Both parents and children can set alerts and notifications.
  • Parents can schedule deposits and also decide which family members can also deposit to the teen’s card account.

Cost:

  • $36 per year (one-month free trial)

Features:

  • Parental controls include prohibiting specific stores and categories
  • Card can be turned off if lost
  • Stops working at $0
  • Fingerprint and facial ID lock
  • EMV chip.

FamZoo

The basics:

  • Family network of Mastercard prepaid cards linked through a family finance app.
  • The “parent card” can send or receive money from the children’s cards.
  • Children can request money.
  • Teens can use card to shop solo, while 12-and-unders can use it with a parent present.

Cost:

  • $59.99 for 2 years.
  • $39.99/year.
  • $25.99/6 months.
  • Includes one parent card and three children’s cards.
  • Extra cards for one-time $2 fee.
  • Fund reload fee: $0-$6 depending on funding method.

Features:

  • Can temporarily lock card.
  • Use as credit card at checkout and get Mastercard chargeback purchase protection.
  • Bank accounts are FDIC insured.

goHenry

The basics:

  • Family network of bank accounts with individual Mastercard debit cards used in conjunction with a family financial app.
  • Parents open accounts and use their card to fund the children’s cards.
  • Parents can set alerts, plus limits on where and how much children can spend.
  • Children can use the debit card for buys and the app for setting alerts and tracking what they make, spend and save.
  • Children can set savings goals and set aside money to reach them.

Cost:

  • $3.99/month – one-month free trial.

Features:

  • EMV chip.
  • Stops working at $0.
  • Can lock and unlock cards.
  • Bank accounts are FDIC insured.

Greenlight

The basics:

  • Mastercard debit card that works in conjunction with an app.
  • Pay allowance weekly, bi-weekly or monthly.
  • Parents can add money for children to spend anywhere or earmark it for one store or retail category
  • Customizable alerts.
  • No age restrictions on cards with parent’s permission.

Cost:

  • $4.99/month per family (up to five children). One-month free trial.

Features:

  • Parents can divide allowance between spending, saving and giving, and set a parent-paid interest rate to encourage saving for goals.
  • Parents can change spending restrictions in real time.
  • Parents can shut off card if lost.

5. Demonstrate the behavior you want to encourage

“Overtly or covertly, they’re watching us,” says Megan McCoy, licensed marriage and family therapist, and secretary on the board of the Financial Therapy Association.

“When you’re making financial decisions, you can talk, too,” she says. “‘I’m buying you this candy bar for all of these reasons.’”

Yarrow agrees. “The money you give your children is your opportunity to teach them to be happy, financially secure adults,” she says. “Accompany that money with training and tools that are age appropriate.”

See related:  5 books, 4 movies to learn more about personal finance

6. Nothing feels like cash

Study after study demonstrates we feel the effects of parting with money more intensely when we spend cash. If you’re trying to teach your children how to budget and stretch a buck, that’s a good argument for a cash allowance.

“We know from the research that the emotional process of spending money is different than spending on credit card,” says McCoy. “It hurts.”

At the same time, consumers are relying more on credit cards and debit cards. Learning to manage plastic is becoming a necessary skill. As the next generation will be using digital tech for transactions, “we as financial educators need to broaden our minds,” says Seaman.

One technique McCoy has used in her own home: a card combined with a spending diary. And they talk about potential spends – and the consequences. If a $25 item totals “half your money,” is it worth it? Not only does writing it down make it real, but it also gives your children a jumping off point to talk about purchases.

See related:  6 reasons to stop using cash and start using credit cards

7. No matter how much you teach, they’ll make some mistakes

One weak area for young adults: stretching available funds to meet the calendar.

It’s a “typical rite of passage,” says Yarrow. “It’s exacerbated by the fact that they don’t see their stash diminishing the way previous generations did because it’s so intangible.”

“You have to help your children understand the abstract nature of dwindling funds,” she says.

A few options for online lessons you can take together: the NFCC and Jump$tart.

8. Look for options that enable saving, not just spending

In the days before cards, children learned about saving and spending by “seeing quarters plunk down, seeing savings grow” likely involving an “old-timey passbook,” too, says Yarrow.

These days, your challenge is to find a way to make savings just as tactile, even with digital money.

For the most part, “allowance cards are not very satisfying on the savings end,” says Seaman. “They’re all about spending.”

If that’s the case with the card you’re using, build a savings component into your plan. Use a big jar or an envelope or “whatever it is you’re stockpiling money in to feel good about your savings,” says Seaman.

A few options: incentivizing savings with matching funds or interest. “We want to mimic what they’re going to experience when they’re adults in an age-appropriate way,” says Yarrow.

9. Supply context for spending

One problem with plastic? Spending takes place in a vacuum, absent any sense of context or consequences. Plus, “some children will be able to visualize numbers better than others,” says McCoy.

Give them a visual that resonates. To compare the spending amount with their total nest egg, McCoy uses the “pizza pie” analogy. “How many pizza slices will this be worth out of your whole pie – and, is it worth it?” she says.

Or, if children are doing chores or taking jobs to earn money, how many hours of labor does this purchase represent?

“‘I have to work three hours to earn this sweater – is that worth it?’” asks McCoy. Not a bad lesson for adults, either.

10. Consider a bank account with a debit card

McCoy’s choice for teaching young people to manage cards? A small free bank account with a debit card.

No long-term costs, plus many banks and credit unions have “some really great programs at banks for little children and are trying to teach small children to increase their financial knowledge,” she says.

Bank accounts for teens

Bank of America: Advantage SafeBalance Banking and Advantage Plus Banking

  • No monthly fees for eligible students under 24 years old.
  • Minors 16-and-under need an adult co-account holder.
  • Parents can set alerts for specific transactions or buys over a set amount.
  • Debit card on request.
  • No fees for adding money or using network ATM.
  • Parents have full access to account.
  • Ongoing education through partnership with Khan Academy.

Capital One: MONEY checking account

  • For children 8 and above
  • No fees, no minimum balance and pays 0.25 percent APY.
  • A parent is the joint account holder.
  • Children can get a debit card in their own name.
  • Transactions that would overdraft the account are declined; no overdraft fees.
  • Account is paired with Capital One’s banking app.
  • Parents fund account from their own Capital One checking/savings accounts.
  • Parents can schedule automatic transfers and monitor account online and through real-time text or email alerts.
  • No fees at Capital One or Allpoint ATM network.
  • Cards can be turned off if lost.

Wells Fargo: Teen Checking

  • For children 13 to 17 (18 in Alabama).
  • No monthly fees.
  • Open with a minimum $25 deposit.
  • Parent needs to be co-account holder.
  • Online access, alerts via text email and online.
  • Parents can set limits on purchases and withdrawals.
  • Includes money management tools and a mobile app.

Sources: Information from Bank of America, Capital One and Wells Fargo.

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Published: April 12, 2019

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