Using cards to help teens manage money

Young woman with credit card talking to her parents

There comes a point when your young children are now young adults and their idea of pocket change involves bills of large denominations. If so, it could be time to give your teens a shot at managing their own money with their first credit or debit card. Here are some tips to help you find the best card solution with the right level of accountability.

Limit overspending upfront

Most teens are still pretty green when it comes to managing money. When entrusting your teens with a card, make sure they share with you how much will be spent and where the money will be spent. One way to put teens in charge is with a demand deposit card also known as a pre-paid card. Your teen can only spend what has been added to the card upfront. Your child 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 the card is tied to a checking or savings account, a debit card is a step beyond a pre-paid card regarding money management and personal accountability. This means money is deducted at the point of service and the purchase is declined if there is not enough money in the account. 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, encourage having paychecks direct deposited into a teen savings account. A debit card attached to this account allows teens to get cash from an ATM and make purchases just as they would with a debit card. Teens can view account balance and purchase history from a mobile device at any time. This way if funds are low or overdrawn, your teen can make changes quickly to get to a positive balance.

Spend now, pay later

If you feel your teens are responsible enough, you may want to consider trusting them with a 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 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 need guidance. This is a great time to continue the conversation about good money management.

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