Using cards to help teens manage money

man and teen with a credit card

There comes a point when your child is no longer a child and his idea of pocket change involves bills of large denominations. If so, it could be time to give your teen a shot at managing his own money with his first credit or debit card. Here are some tips to help you find the best card solution with the right level of accountability for your teen:

Limit overspending upfront

Most teens are still pretty green when it comes to managing money. When entrusting your teen with a card, make sure he shares with you how much he’s spending and where his money is going. One way to put your teen in charge of his money habits is with a demand deposit card like LGFCU’s CashPoints® Global Card (CPG). The teen can only spend what has been added to the card upfront. He avoids overdraft and non-sufficient funds (NSF) fees because the transaction is declined if there is not enough money available. It’s also a good idea to agree on the amount that the card will be funded with beforehand.

Spend and pay in real time

A debit card is a convenient option for performing cash-like transactions. Since it is tied to a checking or savings account, a debit card is a step beyond a CPG card with regard to money management and personal accountability. This means that money is deducted at the point of service even if there is not enough money in the account. Not having enough to cover the purchase could lead to NSF fees unless the card is enrolled in the overdraft transfer service. Before offering this option, be sure your teen understands the consequences of not knowing how much is available to spend.

If your teen has a part-time job, urge him to have his paychecks direct deposited into a LGFCU Zard Account. A debit card attached to his account allows him to get cash from an ATM and make purchases just as he would with a CPG card. He can view his account balance and his purchases from a mobile device at any time. This way if his funds are low or overdrawn he can make changes to get to a positive balance.

Spend now, pay later

Debit and controlled spending cards are two options for granting your teen more financial freedom. However, if you feel your teen is responsible enough, you may want to consider trusting him with his own credit card with a small limit for special situations like purchasing concert tickets. There are risks involved, including frivolous spending, loss of card, or fraud. If you two agree upon rules for use, the risks may be lessened. Check with your own credit card provider to see if your teen is eligible for this option.

Set ground rules

Regardless of which card option you choose, talk to your teen about spending limits and the consequences for improper use. Consider a parent-child agreement to set ground rules for allowance, borrowing and sharing the cost of paying back debt with real money.

Even though you’re trying to close the revolving line of credit known as mom and dad, your teen may still need to borrow from you from time to time. This is a good time to continue the conversation about good money management. 

The advice provided is for informational purposes only.

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