For the inaugural Ask-the-Advisor blog, I answer a question from Jennifer, a mom whose teenager who needs help managing her cash.
Q: I have a teenager who I believe is ready to take the step into having a debit card to access her funds. Our bank will not allow us to do that without a driver’s license (so they have to be 16). Do you have any recommendations on how I can do something like this? What tips can you give me that I can pass on to her about being responsible with the card? As she gets older, should we get her a credit card or would you suggest staying with a debit card?
A: If your teenager has enough cash to warrant a bank account, congratulations! Using a debit card is a good way to introduce kids to the eventual world of credit cards without the risk of running up huge bills.
Some typical employers of teens (I’ve heard this about Noodles and Company from a friend) only pay employees via debit card, not regular paychecks, so knowing how to use these tools is a must.
The trick can be finding a provider that will issue debit cards to younger teens. Here are a few that I found with a quick Google search.
- Wells Fargo Teen Checking™ for kids aged 13-17
- Chase High School Checking ™ for ages 13-17
- Young Americans Bank
There are others and all sorts of fees and rules apply, but that should get you started.
Tips for being responsible with the card:
- Take her to a meeting with the banker opening the account to have her hear from the bank (not you because who listens to their mom anyway) the fees for purchases, overdraft costs, etc.
- Find out what technology is available from the bank to keep her aware of her spending (alerts, balance updates) and encourage her to use them.
- Don’t rush to bail her out of mistakes. If she overspends, make her pay the fees and penalties.
- Have her keep some cash on hand so she is not whipping out the card for every small purchase. Remember, it’s mentally easier to spend on a card than part with physical cash (Starbucks?), so don’t abandon the using green stuff altogether. Save the card for larger purchases when you don’t want to be carrying $200 in ones around the mall.
A student should probably have exposure to a credit card before heading off to college. That way a parent can still be helicoptering and put a stop to spending before it gets out of hand. Credit cards are a great way for young people to build (and ruin!) their credit scores. Before they get out of college and need to rent and apartment or buy a car, it’s important to have created credit history.
I hope that helps Jennifer and all you other parents of teenagers. Please contact me with other questions for the Ask-the-Adviser blog. It’s so much easier than coming up with all of the topics myself! Kristi@sullivanfinancialplanning.com