Educating teens about credit |
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If this setup gives you nightmares
of your teen debiting away his college funds, you (and he) might
be better off with a prepaid card or
stored-value card. Not linked to a bank
account, this variation on the debit card -- Visa
Buxx is a well-known example -- sets even firmer limitations
on spending. Parents activate the card by loading it with an appropriate
amount of money. Other authorized adults, such as Uncle Joe or Grandma,
can also add funds for birthdays or Christmas or when they see fit.
Then Mom, Dad and the teenager can keep an eye on expenditures via
online statements. "Stored-value cards are basically cash," says
Mark, "so they're easy for kids to understand."
As a result, it's no surprise that stored-value cards
are marketed overwhelmingly toward the teen demographic, and each uses a slightly
different marketing angle. MasterCard's affinity-based MYPlash
features images of pop musicians, rockers and athletes, while hip-hop mogul Russell
Simmons' RushCard offers
tie-ins with mobile phones and discounts on clothing from his Phat Farm line and
his ex-wife's Baby Phat label. Paychecks can also be deposited onto the RushCard. The
Allow Card, a MasterCard-branded
prepaid card, aims to educate teen cardholders by e-mailing them a monthly "financial
lesson." It also offers parents 35 controls, including the ability to block certain
types of merchants so that teens can't shop at undesirable places. MasterCard-branded
PAYjr
operates on the allowance principle: Parents deposit a teen's allowance onto a
PAYjr card, and both parent and teen can monitor use online. For kids 12 and younger,
PAYjr has a savings program tied to chores: Parents set up a list of chores and
due dates; once the chores are completed, the payment is automatically deposited
into a savings account. UPside
card, a Visa-allied card, is a prepaid card that can be used online, in stores
and at ATMs. It also has a points program that allows users to get cash back.
All of these stored-value cards have one major drawback: Just
about every action entails a fee. For example, U.S. Bank charges its Buxx customers
for enrollment, balance inquiries, reloading or replacing the card and assistance
from a bank teller. And here's the one-two punch: If you don't use your card for
a few weeks or months, you'll get socked with an "inactivity fee."
Allow Card has a $19.95 activation and "lifetime membership"
fee, and fees for ATM withdrawals ($1.50), monthly maintenance ($3.50),
balance inquiry at point of sale ($0.25), and others. There are
no fees for point-of-sale purchases.
With these examples in mind, be sure to check the
terms of a card before you and your child sign up for one.
Revolving credit
"The basic principles of spending money come long before the first credit card,"
says Mark. "There's a whole collection of related topics: the value of a dollar,
the time value of money, interest, the idea of saving toward a purchase." Armed
with that understanding, teens are ready to graduate to credit cards -- something
they should do before graduating from high school, according to personal finance
experts. | 
