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Plastic for teens: Cardmakers lure the next generation

Paper or plastic? When it comes to cash, teenagers might clamor for plastic.

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Financial institutions are targeting teens with plastic stored-value and debit cards that can be used in lieu of cash. They look like credit cards, but the user can't go into debt. Instead, a dollar value is stored on the card, like a telephone calling card. The monetary value on a card can be replenished online by transferring money from a bank account or credit card. The cards can be used to pay for items in stores or online, and to withdraw money at automated tellers.

If you're the parent of a teenager, you might have noticed advertisements for Cobaltcard, M2card,Visa Buxx or the now-defunct Pocketcard. Children as young as 13 can get the cards with parental permission, and the cards are marketed to young adults as old as 22.

This article and accompanying chart tell what you need to know about these stored-value cards.

Why get one?
Teens and parents might want these cards for different reasons. For teens, the draws might be peer pressure (if their friends have the cards) and the ability to rack up bonus points and get discounts.

Plus, there's the allure of having a plastic card imprinted with one's own name, just like Mom's and Dad's credit cards. And the opportunity to practice plunking down plastic bearing the Visa or American Express logo. These are the sentiments behind Visa Buxx's marketing message to teens: "This is your own Visa Buxx card ... the card to have before a credit card!"

A parent might feel a little queasy from the notion that Visa is trying to get kids hooked on using Visa cards. What happens if you give your son a taste of debit now, and he's mainlining debt in five years?

Not to worry, these card issuers say. They explain that these cards are a teaching tool, allowing parents to instill lessons about budgeting, saving and spending within one's means. Perhaps more important, they allow parents to keep track of their offsprings' spending. Parents can go to the card issuers' Web sites to review information about how much was spent and where.

M2card's chief executive officer, Junehee Cho, explains it this way: "It has the same functionality as cash, but you are given additional tools to keep track of how you spend your money. Tracking is important because you're teaching those who use the card to know exactly how their money is being spent. That's something you can't get with cash."

American Express's Cobaltcard takes the extra step of blocking purchases from online retailers that sell pornography, tobacco and alcohol. M2card highlights "questionable transactions" in red when you review account activity on the Web site.

Because you add value to the cards online, parents can dole out allowances from far away. This could be a boon to noncustodial parents and parents of college students.

All of these cards bear the Visa or American Express logo. MasterCard is conspicuously absent. That will change in the first half of 2001, MasterCard spokesman Chris O'Neill says. He adds that the yet-to-be-named card will "let parents introduce their children to money management."

What are the drawbacks?
The biggest drawback is what happens if a card is lost or stolen. If a Buxx, Cobaltcard or M2card disappears, the cardholder could lose all of the money stored on the card. That's a worst-case scenario; in practice, you can call the issuer and it will suspend the account number and send a new card. You might or might not lose all the money stored on the card, at the discretion of the issuer.

The reason for this muddled state of affairs is that federal regulations haven't caught up with technology. The money on a Buxx, Cobaltcard and M2card is not held in a bank account. Instead, the money is pooled with other users' money, backed by the full faith and credit of the issuer. That means the money on the card isn't insured by the FDIC, and disputes are governed by a tangle of state laws and federal regulations.

Some parents might be appalled at the sight of their teenagers using plastic to make everyday purchases. And if you want to teach your children that there are values higher than consumerism, giving them stored-value cards might send a conflicting message.

Advantages of different cards
Each stored-value card occupies its own spot on a spectrum that goes from most teen-friendly to most parent-friendly. Roughly speaking, the M2card is the most teen-friendly, followed by Buxx, then Cobaltcard.

The M2card markets itself most aggressively to teens. The idea is to sell the advantages of the card to children, who then persuade their parents to sign up.

"M2" stands for "mobile money," and the company plans to offer wireless financial services early in 2001, including the ability to transfer money to another M2 cardholder by phone (or online) and to check balances by cell phone and two-way pager. Eventually, Cho says, M2card plans to provide wireless messages about promotions and special offers.

This is no small matter, because someday all cell phones will be able to pinpoint their location, probably by using a global positioning system. The technology could make it possible for M2 to dial teens' cell phones whenever the cardholders walk into a mall, and offer discounts and specials at certain retailers in that mall.

With purchases, users collect "M2points," kind of like frequent-flier miles, that are redeemable for discounts at selected retailers.

M2card's Web site doesn't have a phone number to call if you have questions that you want answered before you sign up for a card. But you can e-mail questions to customer service. When I sent an e-mail asking two questions, M2card sent an acknowledgment that it had received the e-mail, then sent an e-mail explaining that the questions were being researched. The questions were answered in 20 hours.

Cardholders can get hold of customer service reps by phone, e-mail and online chat.

The Buxx card markets itself primarily to teens, too, complete with thumpy music on the Web site's home page.

Besides having the coolest name among these four payment cards, Buxx has another advantage: the ability of friends and family to add gift certificates to Buxx cards. A kid's grandparents could go online and buy a gift certificate to, say, Old Navy, and the gift certificate would be loaded onto the card. For purchases above the amount of the gift certificate, the rest of the money would be deducted from the cash value of the card.

Buxx doesn't provide a customer-service phone number on its Web site. I submitted two questions by e-mail and they were answered in 25 hours.

For parents, the main advantage of the Cobaltcard is that it blocks the user from buying items at adult-oriented Web sites -- not only pornography and erotica, but also alcohol, tobacco and wagers. A determined teen probably will be able to exploit holes in Cobaltcard's safety net; for example, NC-17-rated DVDs are available from

Cobaltcard allows anyone age 16 or over who has a checking account to get a card without parental consent. In such a case, the child has the option of not granting parents the ability to scrutinize spending.

A customer service rep reached by phone was friendly and informative.



-- Posted: March 6, 2001




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