Did you know that youngsters between the ages of 13 and 19 have huge buying and spending power? On average, this consumer group spends about $5,000 each per year. And much of that funding is provided by Mom and Dad. You may send your daughters to the mall for school shopping, or you may have a child who just can't seem to keep away from the video arcades. You reason that it is money they've earned mowing lawns, baby-sitting or with part time jobs, so it's their money to spend, right? That may be true; yet this age group is at real risk for developing credit and spending habits which will not serve them well in just a few years.
If you've had a child go off to college, I can guarantee that he or she has been offered credit cards. And these are credit cards you may not know anything about at all. Lenders do target college kids for seemingly attractive credit card offers. And many of them do sign up. Unfortunately, they may not have the financial savvy or experience to understand what they are getting into. Today, more than ever, it's important to educate your children about the use (and abuse) of credit. And one way that seems to be gaining popularity is with debit-cards. When I first heard about parents actually encouraging the use of debit cards, I was very concerned. But read on. Parent-controlled use of debit cards might be just what you and your child need to build a foundation of financial literacy.
Debit cards do look like credit cards, but the similarity should end there. With credit cards, your student can charge on up to the credit limit of the card on the very day the card is received. A debit card can be used like a credit card to pay for goods and services but only up the balance on the card at any particular time. So, if you and your student have agreed on a particular allowance from home for various expenses, you can fund that amount monthly and know that your child can't use up next month's rent this month simply because it's not available to him.
Debit cards actually work like a checking account if you think about it. When there is no more balance on the card, the card is rejected. Your student can't write "checks" which will bounce with a debit card. The card simply won't be accepted if the money isn't there. Debit cards can work like ATM cards, too, so access to cash, if there is cash available, can be as convenient as your local ATM machine. Parents don't have to make a mad dash at lunch to put money into a checking account which would take a couple of days to clear. They can set up deposits to a debit card on a regular basis, and those amounts do appear on time on the debit card balance. It's less stress all the way around.
Does this mean your student might not call you at midnight with a "desperate" need for weekend money which won't be deposited till Monday? Nope. He or she still will call. And you can still make the dash to deposit if you want to. But what if you don't? Your student knows that the money will be there, as a balance on the debit card, like clockwork. Are you getting the picture? This is actually a pretty good way to teach your student money management. He can't get into trouble by overcharging or writing bad checks. He will have to learn to pace his spending until the debit card is refreshed at the agreed upon time.
As parents, you may have additional concerns about student spending. Well, there's a monthly statement you receive. If ALL the withdrawals on the debit card are to the local beer emporium, you might need to have a conversation. Also, if all the withdrawals are only at the very beginning of the month, some time/money management discussions might be in order. Many debit card accounts allow parents to limit ATM withdrawals to a certain amount per day to ward off spending sprees. Check with your Credit Union about other safeguards which may be available including how to handle fraudulent use of such a card, and how to handle lost cards. And breathe a sigh of relieve, parents. This really is a good tool for you and your young spenders.
Take advantage of low rate debit cards and all of the benefits that your local Credit Union has to offer. New, "Community" registration status makes joining one simple and open to everyone.