Money Lessons: Debit Cards for Kids

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Explaining money and how it works forms the basis for teaching your kids financial literacy. An easy way to do this is by discussing your money decisions with your children – how you earn money, how you spend it and, of course, how you make your savings choices as well. Basically, what you’re doing is modeling the behavior you’d like your children to learn.

But there comes a time when practical experience is needed. I know. I learned this lesson from my son who was ready for it sooner than I anticipated.

So when your children are ready for hands-on money management, there are a number of methods you can use. One method that is gaining in popularity, particularly for older children, is a debit card.

There are two basic types of debit cards.

One is the card associated with a checking account. The other type is a reloadable prepaid debit card.

Prepaid Debit Cards

A prepaid card offers the advantage of a predetermined spending limit. And, since the card is not tied to a bank account, if lost or stolen, the risk is limited. There is also the advantage for this type of card to teach budgeting and living within their means. When the money runs out, that’s it until the card is reloaded.

Since the amount is controlled, you and your children can determine a budget based on their current financial needs. However, it is best to err on the side of less than more. It is easier to add than subtract. You can always add on if the estimate really was too low rather than the child is spending more than they had.

On the down side, there are generally fees for prepaid debit cards. These can range from an activation fee to monthly services fees and even fees for ATM withdrawals or making a purchase. It is important to look into the fee structure before deciding on a prepaid debit card.

Debit Cards Linked to Checking Accounts

A debit card linked to a checking account offers additional money management opportunities, such as learning how to balance a checking account, linking the checking account to a savings account for transfers, online banking access and online bill paying. However, you as the parent may need to be a co-owner on the account and this could open up more opportunities for risk.

If you believe your child is ready for a checking account with a debit card, you might want to consider a joint account so you can monitor the activity. You can set limits on ATM withdrawals and purchases. You can also have any allowance deposited directly into the account.

But – and this is important – do not have overdraft protection tied to the account. Remember, as with the prepaid debit card, kids need to learn about living within their means. If a transaction is denied because of “insufficient funds,” they may be embarrassed but they are more likely to remember the lesson. Mom or Dad bailing them out, either with cash or overdraft protection, will not teach financial responsibility.

To set up an account for your child, talk to your financial advisor or banker. Have your child present at the discussion. It is part of the learning process.

Reloadable Prepaid Debit Cards

If you prefer a reloadable prepaid debit card, there are a number of prepaid cards that offer different features and fee schedules. Brinks offers a prepaid MasterCard®, TD Bank offers a Reloadable Prepaid Visa® and American Express Serve offers a prepaid card with a cashback feature.

Mobile Apps

There are also companies offering prepaid debit cards that utilize mobile apps for tracking and monitoring usage.

For example, a startup called “Current” recently launched an app based Visa debit card. It does require a bank account for the child, but the money in the account is transferred to the account by the parents, which means parents control the amount of money in the account. This app also allows parents to set and track chores for allowance payments, track spending and even block the card from being used at certain businesses. At the same time, the app allows the child to shop in stores or online using their own money.

As we move further and further into a cashless society, teaching children how to manage their spending and saving habits through debit cards and mobile apps is probably the smarter way to teach financial literacy for the future in which our children will live.

These financial lessons are an important part of the legacy we create for our children and possibly their children as well.

An easy way to organize your online banking and credit card accounts is by storing the information safely and securely on the LegacyShield platform. You can keep track of usernames and passwords as well as make sure others know that the information exists if anything were to happen to you.

You can also use LegacyShield to digitally store important documents, end-of-life and health advocacy instructions, family photos, stories and other vital information you might need to access at any time or at unexpecte

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