Plastic for teens: Cardmakers
lure the next generation
Paper or plastic? When it
comes to cash, teenagers might clamor for plastic.
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.
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
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
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."
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
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.
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.
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
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
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.