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?