Training Wheels… Again.

Training Wheels… Again.

Audio Version: Let Me Hear It!

Mood swings, voice changes, acne, OPINIONS… these are all signs that your baby is growing up. While we can’t tell you how to deal with the joys of puberty, we can help you with the financial transition of teenage independence. At some point, you may begin to consider plastic as an alternative to sending your teen off with wads of cash. Worried that they will overspend or mess up your credit? We don’t blame you. So, instead of a credit card, consider a debit card as your teen’s first plastic – a credit card with training wheels. While a debit card won’t build your teen’s credit, it will still provide benefits for both of you:

Controlled Convenience. Give your teen the convenience of a credit card without going into debt or messing up anyone’s (ahem, your) credit. Help control spending and opt out of any overdraft protection options to limit purchases to just the account balance. Also, consider limiting the amount of a single draw to a few hundred dollars.

Security. Losing a debit card will provide more protection than losing cash. Know that fraud protection varies by issuer – some credit card company sponsored debit cards provide just what is available under Federal law and others provide more.  Federal law will cap the loss to $50 if your teen notifies the bank within two days of learning of the theft.  But, if your teen procrastinates a few days, the cap may jump to $500 and he or she could lose everything if they wait too long (60+ calendar days). We recommend text transaction alerts which can help you keep an eye on your teen’s spending and potential fraud.

Practice.  Setting spending parameters with a debit card can teach your teen not to spend more than he or she can pay off each month. This will be their single most important money habit before applying for their first credit card as an adult. The average household credit card debt stands at over $7,000.  A little practice can make for a better-than-average spender.

Be sure not to confuse a prepaid card with a debit card. Unless they are sponsored by companies providing special fraud coverage, prepaid cards don’t carry the same minimum Federal protections as a debit card against loss or disputed charges. Check out the FDIC’s comparison chart on credit, debit and prepaid cards for more details.