Here we are, a nation deeply in debt. All told, US adults are on the hook for significantly more than US$2 trillion, and more than a third of that is credit card debt. Given the circumstances, what is the best way to prevent our young people from skidding into debt?
(A) Lobby madly for financial literacy programs in schools.
(B) Do nothing.
(C) Create teenager-oriented debit cards to encourage youngsters to assume that money always comes in plastic and that they should spend whatever is on their cards because that's why the cards are there.
Guess what? Despite grassroots efforts across the country to develop financial education programs for kids, option (C) is looking like the front-runner.
In the last couple of years, card companies have created cards that are a hybrid of credit, debit and gift cards -- and the companies are marketing them squarely at teenagers.
The cards, among them the Visa Buxx cards and the Allow and MYplash through MasterCard, look like credit or debit cards, but they have a fixed value. Parents who don't want their children getting into debt (or losing another US$20 bill) don't have to worry, because they can load the card with a set amount of cash -- Sally's allowance, or the birthday check from Grandma -- and Sally can spend or withdraw only what's on the card.
And because we live in such a plastic-happy society, where movies and music downloads and even parking meters sometimes require a credit card, parents can skip the whole tug-of-war with their teenagers ("You need my card again? For what?"), because the children can use their own cards to pay for things.
Although the cards are designed to appeal to teenagers, the companies emphasize parental oversight and financial savvy. The MasterCard Allow Web site, for example, calls the card a "financial training program" and outlines "35 parental controls," including the ability to monitor your child's spending online and to set spending limits.
And some companies promote the cards as a step toward using credit cards. The parental information section on the MYplash Web site says: "This will give your son/daughter a chance to get acquainted with a cash card prior to getting a credit card."
Before they sign up, parents should get acquainted with the fees for these cards. Most charge a fee to set up the card as well as monthly usage fees, plus additional fees to check your balance or withdraw money. Fees run from US$2.50 to US$50.
These cards are problematic, says Janet Bodnar, author of Raising Money Smart Kids, because they foster a kind of magical thinking around money.
"Especially in this digital age," she said, "kids need to handle cash, they need to know what it costs to get iTunes, to buy clothes."
My sister-in-law Kathy Perry tells a funny story about getting one of her sons to grasp the concept of sales tax. "He had saved up, say, US$189 to buy his first iPod," Perry said. "I explained that it was going to cost $189 plus tax. He thought we were so mean, charging him this extra tax."
Perry and her husband are hesitant to give their son, now 17, a card of any description. A 2007 online survey about teenagers and money by Charles Schwab supports her concerns.
Only 26 percent of the 1,000 teenagers surveyed said they were very or somewhat knowledgeable about how credit card interest and fees work. Less than half said they understood how a debit or credit card worked.
"Kids are overly confident about their money abilities," said Carrie Schwab Pomerantz, chief strategist for consumer education at Charles Schwab. "They're taking on adultlike financial behavior, and they don't yet have the skills to handle it."
Bodnar says teenagers can develop more solid money management skills when their parents help them manage actual money.
She recommends giving teenagers a savings account linked to an ATM card, so they can master withdrawals and deposits.
Next, set up an account with a debit card so they can make purchases.
She says they should always be using their own money: "They need skin in the game."
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