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Prepaid Debit Cards — Good Practice for Teens?

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?

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The Financial Blogger » Blog Archive » Financial Ramblings
September 5, 2009 at 8:51 am


Miranda September 2, 2009 at 8:28 am

I’m not sure you need a special debit card to help teach your teens. When I was 12, my mom opened a joint checking account with me. That way, she could help monitor my account and teach me money principles, without all the fees. There weren’t debit cards back then, but I did learn to keep track of each check in a register, and when I did get a debit card, it seemed natural to enter that into the register as well. (Now I use software.)
.-= Miranda´s last blog ..Credit Card Perks Being Cut =-.

Zella September 2, 2009 at 8:44 am

My former credit union offered similar, but with much lower fees and I’m pretty sure that my bank offers the same.

Also, parents can always add their kid as an authorized user without telling them and without getting an additional card (typically you have to specifically request that a card be sent). My mother did that– it wasn’t until I pulled my credit report when I was 18/19 that I found out she had done so.
.-= Zella´s last blog ..We’re buying a house! =-.

mrsmicah September 2, 2009 at 8:49 am

@Miranda My parents did something similar when I started earning money, also w/o a debit card. The one big advantage I can see for this is that parents can lock the card so that the kid can’t screw up and overdraw.

If you’ve already taught your kid basic financial sense, then you’re right it’s probably unnecessary.

@Zella nice. πŸ™‚ When a parent has good credit, it’s thoughtful for them to do something like that. If they have bad credit, of course, then it’s better just to teach the kid to learn from their mistakes.

The Financial Blogger September 2, 2009 at 8:56 am

I like the idea for a 15-17 kid. This could be a first step in learning how to manage a budget (with a withdrawal limit).

However, the real test is definitely a real credit card. I think that if your teen learn to manage his debit card properly, it should be easier for him to manage a real credit card and build a strong credit history.

I would not put too much restriction on the debit card at first. It may be a great idea to leave your kid spend all his money within a week and then realize that he has to work astronomic number of hours to get his money back. We all learn from our mistakes right? At least, his credit score would not be hurt πŸ˜‰
.-= The Financial Blogger´s last blog ..5 Tricks for a Smooth Back to School Γ’β‚¬β€œ A lot of Changes This Year =-.

Stephanie PTY September 2, 2009 at 10:46 am

I had a debit card similar to this when I was 16. My mom helped me open it before I took a trip to Italy, because we were sold by the travel company on the idea that a Visa-branded debit card would be much more convenient than traveler’s checks and trying to exchange a lot of currency. (They were right, by the way.)

The problem was that the travel company’s teen Visa came with a lot of fees, and required at least a $25/month automatic transfer from my mom. So there was always about $22 coming in every month ($25-$3 monthly fee). This was really nice for me, especially when I still had it going off to college! My mom didn’t mean to suddenly start giving me an allowance, she just never bothered to cancel the card.

I don’t think the card taught me anything at all about financial responsibility, since it had an automatic allowance tied to it, and after my trip, I almost never added my own money to it. Mainly because adding my own money was a pain – I had to give money to my mom and then have her log in and deposit the money onto the card via her checking account. What I did learn is that ATM fees HURT, a LOT! The card charged me $3 at the ATM, and the bank ATM charged me $2. $5 to get money out of the bank?!? I learned quickly that using the card itself to buy things directly was a lot better than getting money at the ATM.

It did get me comfortable with online banking, but I can’t really say that it was a benefit either way. It was helpful for my trip to Italy, but after that, it was just sort of something I had. Of course, I lived in the middle of nowhere with no car, so I didn’t have a job in high school… maybe a card like this would be more useful to teens who actually have income. I can only speak as to my own experience with it.
.-= Stephanie PTY´s last blog ..Net Worth Update: August 2009 =-.

Matt Jabs September 2, 2009 at 1:27 pm

Personally I think that if a kid doesn’t already know how to handle their finances by the time they’re a late teenager… they’re most likely going to be in trouble.

Parents should be training their children in the art of proper money management from day one. That is proper education.

However, we do not live in a perfect world, and a lot of parents are just waking up to the reality that they have not properly trained their now teenage children in the art of personal finance.

So what’s the answer?

I suppose this card is one way of handling that brutal task, but I share some of the same concerns as Mrs Micah and the other commentators – fees, fees, fees.

I think a better option would be to sit them down and help them form a budget around the money they already have. Put in the time to work with them on this, then pray that it sinks in! If not, they will learn their lesson one way or another… πŸ™‚
.-= Matt Jabs´s last blog ..Spending Filters Γ’β‚¬β€œ How I Save Money On Just About Everything =-.

David@DINKS Finance September 2, 2009 at 1:46 pm

I’m a little more risky so I am considering giving my children credit cards when they turn 16 – linked to my account :0

I will set limits – you can only spend it on gas, toiletries, etc. and only a certain amount. If they spend too much I will take the card away for a month. This worked when I was younger (never got mine taken away but my sister did plenty of times).
.-= David@DINKS Finance´s last blog ..Credit Card "Convenience" Checks =-.

Mr. Not the Jet Set September 2, 2009 at 6:49 pm

An absolutely useless product intended to teach kids to pay for things with plastic and develop affinity to the Discover brand.

How is it teaching responsibility when the parents are limiting it’s use? It’s not. Mommy might as well be holding their hand and telling them what they can and cannot do.

We as parents and consumers need to stop looking for magic pills to solve our problems and do our dirty work. We need to teach our kids what to do and why based on sound financial principals, and then back it up with our own positive financial behavior.
.-= Mr. Not the Jet Set´s last blog ..Dresser Take Two =-.

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