Say 'No' to Debit Cards for Teens

If you want to teach your kids about managing money, stick with cash.

Even as consumers try to unload credit-card debt -- and card issuers try to unload high-risk borrowers -- some banks are still trying to get teenagers hooked on plastic.

"Call it plastic on training wheels!" chirps the press release for the new Current Card by Discover, the latest debit card aimed at "kids, tweens and teens." I've never been a fan of these cards, and I like them even less given the current economic climate.

The idea is that parents deposit money in the card account, which the kids can use to buy stuff or make withdrawals from ATMs. The cards tout selling points designed to appeal to parents. "Unlike cash," says the press release, "the Current Card gives teens a better way to track and manage their spending while developing smart money-management skills."

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In addition, parents can monitor spending online or via e-mail, set spending limits and block certain merchant categories. Sorry, but I'm not convinced. Here's why.

  • Debit cards encourage kids to spend. Despite their lofty goal of teaching young people to manage money, they really make it easier for kids to spend it. With the Current Card, for example, teens are eligible for "members-only" in-store coupons and online discounts when they use their cards at select restaurants, movie theaters and other "teen-friendly merchants."
  • To kids, plastic is plastic. These cards aren't credit cards, but young people don't draw a distinction. To them, any plastic is magic money that's meant to be topped up by Mom and Dad when it runs out.
  • Parental controls are overrated. Letting children make choices about how to spend their own money is a good thing (see Dear Sasha and Malia). But parents don't need to know whether the kids choose to eat at McDonald's or buy a pair of jeans. You certainly don't want them to buy things that are inappropriate or illegal. But if you're worried they'll spend money on Internet porn, they shouldn't have a card in the first place.
  • The fees are high. The Current Card levies a monthly charge of $5, or $50 a year. That's a lot to pay to track your kids' allowance when as adults you can get a checking account for free or a credit card with no annual fee.

I have always recommended that kids be given a cash allowance, and that goes double now that cash is cool again. There's nothing more real to a kid (or an adult, for that matter) than paying with hard currency and taking a direct hit to the wallet.

If you really want your teens to enjoy some of the convenience of plastic, you can always arrange for them to have an ATM card with access to a bank savings account. That's how my son managed his money throughout high school, depositing his paychecks and making withdrawals when he needed cash. When he turned 18, I offered to get him a real debit card. He declined. "It would be too easy to spend money," he told me.

Janet Bodnar

Janet Bodnar is editor-at-large of Kiplinger's Personal Finance, a position she assumed after retiring as editor of the magazine after eight years at the helm. She is a nationally recognized expert on the subjects of women and money, children's and family finances, and financial literacy. She is the author of two books, Money Smart Women and Raising Money Smart Kids. As editor-at-large, she writes two popular columns for Kiplinger, "Money Smart Women" and "Living in Retirement." Bodnar is a graduate of St. Bonaventure University and is a member of its Board of Trustees. She received her master's degree from Columbia University, where she was also a Knight-Bagehot Fellow in Business and Economics Journalism.