So if you’re a parent looking to impart some financial wisdom to your kids, teaching them how to use a debit card for ATM withdrawals and purchases should be high on your list.
Here are five "teachable moments" involving debit cards that can help prepare your child for financial adulthood.
Teachable Moment #1: Account Minimums and Fees
Since a debit card links to a checking account, this is a good opportunity to acquaint your child with how banks work. At many banks, someone as young as 13 or 14 can open a checking account, although a parent will typically have to put his or her name on the account as well.
To start an account, your child will have to come up with enough money to cover the initial minimum deposit. The bank might impose maintenance fees if the balance falls below a certain amount. Kids also need to be aware of any extra fees their bank charges to use ATMs that are affiliated with other financial institutions.
As with a checking account, using a debit card can result in overdrafts (that is, spending more money than is in the account) along with overdraft fees. If your child goes to buy gas with a debit card and doesn’t have enough money in the bank to cover it, the sale will typically be declined at the pump. Your child can arrange for overdraft protection to prevent that situation, although there are usually fees involved. Another option is to link his or her checking account with a savings account at that bank so money can be automatically transferred to avoid an overdraft.
One other lesson about fees: They are sometimes negotiable. So encourage your child to ask the bank if it can waive the maintenance fee or a first-time overdraft fee, for example. It may not work, but it’s good practice for later life.
Teachable Moment #2: Managing Their Money
Urge your child to get in the habit of reviewing his or bank statement, either online or on paper, each month and suggest that he or she sign up for alerts (by email or text) when the account’s balance dips below a certain amount. Check out any of the many apps that will help with tracking account balances, managing spending, and budgeting.
Teachable Moment #3: Explore Other Card Features
Debit cards often provide protections that are worth making sure your child knows about, just in case. Some offer "zero liability" in the case of unauthorized purchases, and many now use chip technology to reduce the likelihood of fraud in the first place. Your child might also be able to sign up for ID theft alerts.
Today’s debit cards often have features that were once associated just with credit cards, such as extended warranty or price protection. Extended warranty protection typically doubles any original warranty (the manufacturer’s or store’s) of one year or less. Price protection means that if you find a lower price on an item within a specified amount of time (say, 60 days) you can get the difference between the price you paid and the lower advertised price.
Teachable Moment #4: Debit vs. Prepaid
You might be wondering if it would be easier for a child just to use a prepaid card instead of a debit card. A prepaid card is independent of a bank account; you simply load money onto it for spending purposes. On the plus side, you won’t have to worry about your child racking up overdraft fees. But on the minus side, he or she won’t be learning as much about how to manage an account.
Prepaid cards also lack many of the consumer protections that other cards have. The federal Consumer Financial Protection Bureau has developed new disclosure rules and protections for people whose prepaid cards are lost or stolen. However, those rules don’t take effect until April 2018 and could be rescinded in the meantime.
Teachable Moment #5: Model These Behaviors Yourself
You can give your son or daughter wonderful financial advice, but it also helps to demonstrate that you follow your own recommendations. You don’t need to share every detail of your financial life, but show that you check your own back statements regularly, pay attention to where your money’s going, and don’t hesitate to challenge fees that you think are unwarranted or unreasonable.