By Susan Hely,
My 15-year-old daughter recently asked for a debit card because some of her friends have them.
Their parents transfer money to their kids’ online allowance account, or the kids contribute money from their part-time jobs. Then they can access the money with a MasterCard or Visa-branded debit card at an ATM or make purchases online or at the shops.
I told my daughter she doesn’t need a debit card and it’s better to stick with
cash. She earns cash from baby-sitting and deposits at least half in her online
Teens need to manage their money by seeing and feeling it. Cash helps my daughter understand how much things cost. She can go shopping with $50 and when it runs out, she stops buying.
But account-based debit cards link her to larger amounts – potentially to all her savings – unless you set up separate accounts. When she’s shopping, it’s too easy for her to spend and it’s too tempting to buy impulsively.
I feel she needs a year or two to become more financially independent and mature. I don’t want to be called on to top up her debit card, as I used to be with her monthly prepaid mobile amount.
She knows I will top up her mobile account by making a call. If she runs out of money on a debit card, I don’t want to be called on to load up the card. Debit cards make it easier for kids to spend, but it’s the parents who will cough up. In most cases parents have to apply for an account based debit card if their child is under 18.
When my daughter is working part-time for an employer who deposits money into her bank account, that’s when she will need a card to access an ATM to withdraw her earnings and shop online.
A debit card will be certainly better than a credit card, because she will be spending her own money. A credit card is all about borrowing money from the financial institution that issues the card, and that’s difficult for most teens to understand.
There are two sorts of debit cards, ones that are linked to a bank account, and the pre-paid debit cards that are like universal store gift cards, says Harry Senlitonga, senior financial analyst at Canstar Cannex.
A debit card linked to a bank account is not much different to a normal EFTPOS or ATM card. Parents can use the pre-paid debit card as a budgeting tool for their kids, topping it up regularly, he says.
Debit cards from banks typically have a monthly fee that can stretch from $5 to $12 a month, but Senlitonga says if you shop around you can find debit cards from credit unions that have no monthly fee. The ANZ Visa debit card gives full-time students a 50 percent discount on its $6 monthly fee.
Pre-paid gift debit cards have a one-off fee – Senlitonga says they are a little more expensive than a normal debit card because they are a one-off purchase, and you can’t load more funds on them.
For more on banking, check out this month’s Money
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