Though the Kardashian Kard, with it’s astronomically high fees ($99.95 for a year) has already been pulled off the shelves, there are still plenty of people out there trying to sell preloaded debit cards to parents. But are they a good idea?
Sure, they allow you to see how your children are spending their allowance, and they teach kids to use the plastic that will surely only become more prevalent as they reach adulthood, but do they also teach poor financial planning? Janet Bodnar of Kiplinger.com, says yes, and she has a point. If kids don’t start out having to budget with cash, they never see what their spending and may not truly understand that it is a finite resource. Cash helps kids see what their spending, and understand that when it’s gone, it’s gone.
Rechargeable debit cards are also exactly that, rechargeable. Transitioning teens straight from a debit card with mommy’s money on it to a credit card runs the risk of never giving them a real education on the consequences of plastic. Raising a child conditioned to just charge every expense is a dangerous thing in our times of escalating personal and public debt.
Bodnar recommends starting your children off with a cash allowance instead, then getting teens who are ready for the responsibility, but still too young for a checking account, an ATM card linked to a savings account with gift money and allowance and earnings from any job they’re doing. That way they can withdraw cash, but still have to use actual dollars and cents to buy things. Then, when your child is ready, it’s time for a checking account and a real debit card. Make sure, Bodnar cautions, that the account is their money, not yours, so that they give some real thought to what they’re spending. Even if you’re refilling the account with a specific allowance, budgeting at an early age is always an important skill.
The last step of her financial independence plan is a credit card. Giving your college student a co-signed credit card that they have to manage (but you can supervise as co-signer) is a great way to build their credit and their sense of financial responsibility.
