If there’s an award for bad idea of the year, non-politics division, the early frontrunner must certainly be giving children their allowance on debit cards. Pushed by banks and app developers, the debit card spares parents the annoying task of getting cash to give the kids for their weekly or monthly allotment or as payment for chores. It also allows them to see all the purchases the kid makes and restrict purchases from certain stores. Many of these new cards attached to apps also give parents the option of designating some of their payments to savings accounts. The past few weeks have seen a very small but persistent media campaign about the paperless allowance, including an article in the New York Times’ “Your Money Advisor” column.
According to the Times’ sympathetic article, financial advocates say that the main benefit of the cards “is that they can prompt parents to talk with their children about money.” Prompt, by the way, means reminds. So even the so-called advocates admit the cards fulfill no real function, since any online calendar or the bugging of the kids for their cash can serve to prompt the parent. Of course, we can’t forget the convenience of not having to stop at the ATM or bank to make sure you have the bucks to pay the little dears. Just load up the cards.
These so-called financial advocates must represent the banks and app companies, because they certainly don’t represent families.
Forget about the fees, which give parents and children less buying power. The prepaid cards deny children the opportunity to learn firsthand what money is and what it can do: With a card, the child is unable to see money accumulate or understand what it means to exchange money for a product or service. With a card, the child doesn’t get the experience—and pleasure—of going to the bank to deposit or withdraw money and seeing principle grow in the passbook or knowing when you see the new deposit appear online the number and denomination of dollars and change it represents. The card thus denies the child the opportunity to use money to learn basic math and financial skills.
Because the child knows or will find out that the parent can use the card to monitor and veto purchases, the child loses the sense of ownership over the money. When the parent designates some of the allowance to savings, it’s not the child saving, it’s the parent. The child is the active saver only when she-he sees the money and makes the decision to put some away. Part of learning how to handle money is to make mistakes with the small amounts children get for their allowance. Parental supervision of how every penny of an allowance is spent is an ultimate form of helicopter parenting, keeping children intellectual slaves to their parents long after they should be stretching out and starting to take responsibility for themselves.
One app company makes cards for children as young as six. Imagine a six-year-old who never gets to convert ones to fives or to count out fifty pennies and stuff them in a paper roll. Moreover, think of the kind of consumer this child will grow into. A consumer who has primarily used debit cards. One who is used to paying fees, and in fact probably grows up not even knowing that his use of the card comes with fees. A consumer whose concept of money is completely abstract. One whose math skills may not translate into a practical understanding of what buying power is and means. In other words, a consumer trained to be a financial rube. Perfect for banks and retailers.
Frankly, I don’t see any use for a debit card, because federal laws free banks to pile on fees. No-fee credit cards I like, but only if you do what I have done since I got my first credit card 48 years ago—pay off the entire balance at the end of every month to avoid incurring any interest or fees. But use of both credit and debit cards should wait until a child has basic math skills and has demonstrated financial responsibility. Most college kids are forced to use credit cards to make purchases at their universities. That’s soon enough to be introduced to this very complicated and fee-ridden way of keeping track of your money.