How do you put financial training wheels on your teen? A clever method I’ve run across recently is the Current Card by Discover®, a prepaid debit card designed specifically for teens.
Unlike regular debit cards, the Current Card has special features which allow parents to monitor and limit their child’s spending. For example, parents can restrict the card to gas stations and ATMs. Or they can put a $60/day or $100/day or $X/day spending limit on it. Parents can opt to get e-mails or texts about card activity.
Like regular debit cards, this doesn’t build credit. But because it’s not linked to a bank account, you don’t have to worry about overdraft fees. Instead, the Current card can be funded online from another account or take direct deposit payments.
Its primary purpose is to teach teens the responsible use of a debit card and help them get accustomed to plastic without forgetting the reality of the money they’re spending. This way, when they start building credit in college, they have some experience and, one hopes, will be more resposible.
Advantages of the Current Card
The biggest advantage of the Current card (and others like it, though I haven’t heard of any which are as involved as this) is the parental controls. It’s a teaching card and a safe card. It encourages parents to participate in their child’s financial habits, which is a good way to guide them and prepare them for the real world.
You can’t overdraw. In a world where it’s easy to bounce checks, overdraw checking, and even overdraw credit cards, you can’t overdraw the Current card. This can put a parents’ mind at ease and teaches the teen to know their limit so they’re not rejected when they try to purchase something.
The card’s spending and location limits can be changed easily, so you can start your teen off with heavy limits and expand as they prove their ability to use the card wisely. Also, there is no fee for inactivity, compared to some gift cards.
Disadvantages of the Current Card
The greatest disadvantage of the Current card is its annual fee. You can either pay $5/month or $50 for a year (saving $10 over month-by-month). Checking accounts almost never charge annual fees.
There are some smaller fees: $.50 per ATM withdraw (after the first four, which are free), $3 to replace a lost or stolen card, and $5 to receive a card statement by mail.
One could also argue that this kind of debit card doesn’t truly test the teen’s ability to handle money, since it’s so heavily monitored. They don’t have the chance to prove they won’t overdraw when they have the chance. In my opinion, it’s like training wheels. You don’t want them on forever, but they’re a good start.
A minor disadvantage of this card over a credit card is that it doesn’t build a credit history or credit score. However, (as of the time of writing) FICO allows authorized users (including teens) to build credit on their parents’ cards without ever using them themselves. They had discontinued the practice for a year before reinstating it with what they consider better detection of people paying to piggyback on credit cards.
You can still add your kid to your credit card account, shred the card, and allow them to build a credit score off yours while teaching them to handle their own money with the Current card or another debit card.
Would You Use a Card Like This?
So, what do you think? I’m fascinated by the parental monitoring and control system and pleased by the inability to overdraw. On the other hand, I was a very responsible teenager with my money and never needed something like this.
Overkill? Just right? Good for some kids? Would you use it?