More teens and even preteens are opening checking accounts, using debit cards. It can teach money skills, but has risks
Kids today are playing with cards more than ever. The kind linked to bank accounts, that is.
According to the 2016 Parents, Kids & Money study commissioned by T. Rowe Price, 32 percent of 8 to 9 year olds have a bank account, and about 43 percent of 10 to 14 year olds do. Over half of the children reported shopping online – a task all but impossible with plain old cash.
“We are seeing growth in the number of teenagers with checking accounts and debit cards,” says Erin Constantine, Wells Fargo’s head of consumer deposit products. For this reason, the bank created its Teen Checking account, designed to help parents teach kids good money management skills.
Debit cards can be excellent tools for both children and their adult guardians – as long as they’re given, used and monitored with vigilance. Virtually anything can be purchased online, including alcohol, prescription medications and even illegal drugs. The shopper’s age is often irrelevant. A 2016 Nicotine & Tobacco Research study, for example, examined the ease with which minors can buy electronic cigarettes and supplies. For the study, 16- and 17-year-olds were asked to use their personal debit cards to make online purchases of e-liquids, the fluid that fuels electronic cigarettes. Those transactions were successful in 34 states.
The cool uptick in plastic
Susan Beacham, the Chicago-based founder of financial education firm Money Savvy Generation and author of “OMG: Official Money Guide for Teenagers,” cites the cool factor for heightened debit card popularity among adolescents. “It makes them feel socially accepted,” says Beacham. “What’s more important to a middle schooler than that? The debit card becomes another accessory. It looks like what all the popular kids have, and is a reflection of status and wealth.”
If a 13-year-old uses the card inappropriately and you take it away, she feels the pain. Better now than at 30.
Founder of Money Savvy Generation
“It started with a groundswell of gift cards,” says Beacham. “But the dirty little secret of those was that kids were losing them. Money was left on the gift cards and parents got frustrated. So they started opening checking accounts with debit cards instead because it felt safer. Then other kids started asking for them because they saw their peers paying for things with debit and not cash.”
And a trend is born. “We work with a number of millennial clients with elementary school children and we see it more and more,” says Daniel Grote, a certified financial planner from Denver. “Third, fourth and fifth grade kids have debit cards. We’re seeing it younger and more frequently now.”
Cash is so last century
San Francisco technology analyst Mark Bunger distributes debit cards attached to previously opened bank accounts to each of his three kids when they turn 12. “Cash is having less and less of a place in this society,” says Bunger. “The way we manage money is electronically by default.”
Grote himself had a debit card of his own since he was in elementary school. Parents, he says, would be wise to come on board.
“Since our schools do not currently teach money management on any widespread basis, and financial intelligence is at the heart of success as an adult, it is imperative that children learn at an appropriate age how to reconcile an account with a debit card,” says Grote. Even negative experiences are positive: “I can vividly recall cutting my debit card to pieces after I received an insufficient funds notice in the mail because I failed to properly account for debit card transactions.”
Grote believes that debit cards are the perfect precursor to credit cards. “It is elementary knowledge that staying out of debt is a key to financial success. This starts with understanding how to be successful using a debit card. Debit cards teach us hard lessons immediately and impressively – if the money is not there, don’t spend it. The lesson is taught so well because few things leave an indelible mark as much as getting declined in the presence of your friends.”
When smartly used, a card pays off
Aside from debit cards being crucial for kids to become proficient with electronic transactions, Bunger says switching to a plastic-based system improved family harmony. “We used to have the Byzantine allowance system of handing out money, but the kids would argue that we didn’t give it or accuse each other of stealing.”
The bank accounts allow them to go online to see all the deposits and track their usage. “It basically ended the money fights,” says Bunger, who explains that overall, it’s been a hit: “The kids were super excited about the cards.”
And then there are the really early adopters. Westchester, New York, parenting expert Cherie Corso provided her daughter with a debit card when she was just 9.
Cash is having less and less of a place in this society. The way we manage money is electronically by default.
San Francisco tech analyst and father of three kids
“I first started it because she got money for birthdays and communion, so I said, \u2018Let’s open a debit card.’ I co-signed for it from a local bank. After that, I noted that her shopping habits changed. When she was spending her own money, she would think twice about the purchase.”
Being in control of her banking also helped her daughter with a fledgling business of selling spare toys on eBay. The profits went into her account. “I gave instructions on keeping accountability,” says Corso. For example, “Know how much is in the account and track each purchase. This is how to deposit money into an ATM. I’d help her and show her the receipt.”
Another teaching moment was learning there was a monthly fee for keeping less than $500 in the account. “That taught her that there is nothing free in life!” says Corso.
The sooner everyone becomes accustomed to the psychological difference between spending with cash and spending with plastic, the better, says Grote. “Using a debit card is less painful because we don’t see the money leaving our hands. Helping children draw this connection and manage their spending is something that shouldn’t be missed before they step out into the real world.”
How to manage a card-carrying kid
According to Eric Pucciarelli, vice president of oXYGen Financial in Alpharetta, Georgia, the major concern about debit cards is control. “As a parent, you will have trouble limiting how they spend their money,” says Pucciarelli. “They can go to all sorts of websites, pornography, whatever. A debit card passes through the internet just like a credit card. It’s a problem. The card doesn’t say this person is over 18 or 21.”
For this reason, Beacham advocates youths having access to accounts with debit cards, as long as parents are willing to step in to teach and monitor the process. “It’s not the bank’s responsibly; it’s the parents,” says Beacham. “In the beginning, check transactions every day online. Look at them with your child. Take five minutes and pull up the account. You’ll throw a bucket of cold water on spending on things like drugs or cigarettes.” If the child is in good shape after a few months of perfect use, loosen up but stay vigilant.
“It’s easier to learn and fix mistakes when the kids are younger than when they’re grown,” says Beacham. “If a 13-year-old uses the card inappropriately and you take it away, she feels the pain. Better now than at 30.”
Unchecked spending on unsavory or harmful items is just one problem to discuss and avert. Identity theft is another. Parents need to teach kids never to give someone else permission to use the card, and for them to report card loss or theft immediately.
As per the Electronic Funds Transfer Act, an account owner has up to 60 days to notify the bank of fraudulent use. Wait too long and all the money that was stolen might not be reimbursed. Even if it’s reported quickly, painful financial repercussions might ensue as unauthorized debit card spending reported in two days can have a liability loss of $50; within two months it’s $500. That’s a lot of babysitting or allowance money for a child to forfeit.
However, it doesn’t take much to monitor proper usage, says Bunger. When he hands over debit cards to his kids, he reviews the bank-issued instruction booklet with them. After that, he lets them manage their financial affairs. Watching their different money styles with the cards and accounts emerge is fascinating. To date, one daughter has amassed $1,000, while the other spends nearly every penny. His youngest son hasn’t come of age yet, so the data isn’t in. “He loses everything,” says Bunger. “We’ll see.”