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Kids and Money: Is a Prepaid Debit Card a Good Idea?

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Payment with plastic has become the standard in our society. Even if you don’t use credit, chances are that you swipe a debit card. Getting used the idea of paying with plastic, and learning how to deal with money that is more abstract than cash, is important. Teenagers need to learn how to track their spending, even when they don’t hand over cash. This important lesson is one of the reasons that we are seeing a rise in marketing for prepaid debit cards.

But are prepaid debit cards really the answer?

Advantages to Prepaid Debit Cards

The biggest advantage to a prepaid debit card is that it provides a way for you limit your child’s ability to spend money. A specific amount of money is loaded on to the card, and when your teen spends the money, further transactions are denied until the card is reloaded with funds. You can get access to account details, so that you can see where your child is spending his or her money.

All of this creates a situation where your teenager can learn about money management and paying with plastic in a responsible manner. You can encourage your child to use a personal finance application to track his or her spending, and to track when more is added to the prepaid debit card. It can be a good way to get practice, without the risk of going into debt.

Disadvantages to Prepaid Debit Cards: Fees, and More Fees

The main problem I have with prepaid credit cards is that they come with fees. Lots and lots of fees. You have an activation fee. Most prepaid debit cards come with monthly service fees. Some cards will charge you a fee if you use an ATM (even the issuer’s ATM) to check your balance. You even pay a fee when you reload the card. All of these fees start to add up. You could easily pay more than $100 a year in fees on a prepaid debit card.

Possible Solution: Joint Checking Account with a Regular Debit Card

Instead of getting a prepaid debit card for your teenager, perhaps you could open a joint checking account. Put your child’s name on the account first, but make it a truly joint account. I had a joint checking account with my mother from the time I was 12 until I married at 22. (I did open my own primary account at a local credit union when I went to college, but I kept the joint account as well, for just in case.)

I wrote my own checks and made withdrawals from ATMs. (This was before debit cards as payment became popular. Have I dated myself?) My mom received a copy of my bank statement, so she could check up on me, and provide guidance. She taught me to track my spending and reconcile my records with my bank statement every month.

These days, it is usually possible for a teen to get a debit card through a joint checking account. You can still monitor your teen, and he or she can still get real world experience with plastic payment. Turn down the standard overdraft services when you open the account, and your teen will be denied ATM withdrawals and point of sale transactions when there isn’t enough money in the account. Your teen learns a lesson, and you pay fewer fees.

Weigh in: What do you think is the best way to teach your child about plastic payment methods?

{ 16 comments, please add your thoughts now! }

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16 Responses to “Kids and Money: Is a Prepaid Debit Card a Good Idea?”

  1. Annie says:

    Even though we taught my son how to balance an account and he certainly knew how to subtract the ATM card proved to be a difficult experience when he started in college. We had a joint account and he tended to use the debit portion and would forget to subtract. His coffee that was $1.50 ended up costing $30 with bank fees. I eventually took my name off the account as it stressed me out. He is now doing fine and able to manage his account well but beware.

  2. cubiclegeoff says:

    I would rather they have a card linked to their own account than mine. And there are pre-paid debit cards with no fees, you just have to find a bank that offers them (like USAA).

  3. Christine says:

    Most banks will not give a debit card to anyone under 18, only an ATM card. Paypal has a great option called a student card. The parent apples for the card and it is issued in the child’s name and parents can add money as needed. The best feature is that you can transfer money immediately in an emergency and it is credited to the card immediately even though it is not withdrawn from the oaten’s account for a few days. It can be used anywhere a credit card is accepted or used for cash withdrawals. The child can login to paypal using his/her own email address to view balance and parent can see activity as well. I have them for both my kids, now in college but they still use in emergency.

    • Shirley says:

      I find your post very interesting as I have used PayPal only a few times and that was several years ago and for direct payment.

      You say, “It can be used anywhere a credit card is accepted or used for cash withdrawals.”
      Is this student card a Visa or Mastercard by title or is it simply linked to the parent’s cc account?
      Will a purchase be denied at the register if there is insufficient money in the student account?

      • Christine says:

        Shirley,

        You as the parent have the card linked to your checking account and you can transfer money to the card, it works like a debit card but only up to the amount that you have placed on the card, you have to manually transfer more money to the card from your checking account when needed so it is a great way to teach budgeting.

        For example, you can transfer $100 first of every month and your child has to make it last the full month before you transfer more. You can also get email notification if it falls below a balance that you set.

      • Christine says:

        My daughter did go beyond the amount on her card once using it for gas because gas pumps don’t stop once the limit is reached. Her account showed a negative balance until I transferred more money but there was no OD fee charged.

    • skylog says:

      thank you. i never knew this existed.

  4. ~L. says:

    For those who wish to give their kids debit card or helping them get a credit, it would be worthwhile to expose them to a documentary, “Maxed Out.”

    Your kids might not want a credit card after watching the vid.

  5. Jim says:

    I have gone the same route as Christine.

    I have had a PayPal with an associated CashBack [1.5%, immediately] Debit Card account for a long time. They came out with a Student Card a bit ago and reviewing their fees with other methods, they have fewer fees and what fees there are, are well spelled out – no monthly fees, no activation fees and many of the extra fees associated with other Pre-paid cards purchased at Stores or through Banks.

    ATM fee is $1.00 at US Banks. The card can also be set up as to how and where it can be used. Who can fund it and more.

    There are a number of “alerts” that can be setup, that will generate a text or E-mail at no charge. It is very easy to go online and move money from my Account to my child’s card.

  6. Alex says:

    It is a good idea to teach children about personal finance as early as they want to buy something. I remember my father taking me to a bank to set up my first checking account at 15. For younger kids a prepaid debit card is a great idea granted they understand it. Parents have to teach this to their kids, because schools definitely wont.
    A good way to teach them about the value of money is to match whatever they save in their piggy bank once per month.

  7. Anonymous says:

    Do u need a parent to reload your card?

  8. Pg says:

    Wow, this is my first time on this site and I’ve gotten a lot of useful ideas. Thanks

    • Shirley says:

      This is one blog I never miss because with so many diverse thoughts and opinions here, the knowledge and ideas just keep on coming day after day.

  9. Matt says:

    I think it depends on the teen, I am a freshman in college and have a credit card. I have a part time job and I never carry a balance on my card, using it as a charge card and getting a little cash back. So for a teen that is financially responsible having a credit card is a great move, as it helps establish your credit rating as well.

  10. Estella says:

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