Pocket Power - use of PocketCard debit card by children - Brief Article

Kiplinger's Personal Finance Magazine, June, 2000 by Janet Bodnar

MONEY-SMART KIDS | Children still need a feel for cash before graduating to DEBIT CARDS.

THE OTHER DAY my 17-year-old son, John, received an "invitation" in the mail from Capital One to apply for a credit card. Actually, my husband and I were invited to apply for a card on John's behalf, just in case we're not available in an emergency.

With John still living at home, I can't imagine many situations in which we wouldn't be easily accessible. And for a teenager with a credit card, a $3.30 grande mocha Frappuccino at Starbucks qualifies as an emergency expenditure. Besides, I have used this space to advise other parents against getting credit cards for their high-school-age children. So it was easy for me to decline Capital One's invitation.

But it was a little tougher to decide how I felt about PocketCard, a new online-based debit card aimed at teenagers (www.pocketcard.com; 888-888-5164). In general, I'm on record as being in favor of debit cards for teens as an interim step between cash and credit. Plastic offers convenience and a certain amount of protection if you're worried about kids carrying cash, and you can get money to your children quickly if necessary. Purchases are deducted immediately from their account, so they can't run up big balances.

PocketCard is the brainchild of William Scheurer, who has 15 years of experience in electronic-payment services and, more significantly, four children of his own. Tired of being what he calls "an ATM on wheels" for his kids, Scheurer created the PocketCard account, through which parents can transfer money to their kids using either the Web or a touch-tone phone. Kids use the Visa-branded card to make purchases wherever Visa is accepted, or even to get cash out of an ATM (for a $1 fee plus the bank's own ATM charge). And, of course, they can buy merchandise over the Web or the phone. "Plastic is the new coin of the realm," says Scheurer.

PocketCard has a number of safety features. A record of account transactions shows up immediately online, so kids--and parents--can keep tabs on where money is going and how much is left. And if a card is lost or stolen, there's no liability as long as you report the loss within 48 hours of discovering it.

Disappearing act. While PocketCard is intended for teens age 13 and up, parents are getting the cards for children as young as 8, says Scheurer. And there's the rub. Call me un-hip, but handing a plastic card to an 8-year-old just doesn't feel right. Clumsy and old-fashioned though it seems, children that age should be rummaging in a sock drawer or jelly jar for crumpled bills, or counting out sticky quarters to pay for their latest Lego set. Once kids get a feel for cash--and see how fast it can disappear before their eyes--they can move on to more abstract forms of money management, such as a debit card.

Even then parents aren't off the hook, because you'll have to decide how to fund a child's account. In fact, where children spend their money may be less important than where it comes from. Kids should be using their own money--from gifts, chores and allowances--to buy stuff, rather than having carte-blanche access to their parents' account (it's noteworthy that PocketCard lets kids transfer funds from their own savings and checking accounts). And they'll still need cash for incidental expenses that plastic won't cover.

Power play. When I bounced the idea of PocketCard off my panel of expert advisers--my own long-suffering children and whichever of their friends happened to be on the scene--their eyes popped. "It would give kids a feeling of power," said Susan. But Claire pointed out that power can corrupt: "If you go to the mall with a $20 bill, that's all you can spend. But if you had, say, $1,000 on a card, you might be tempted to spend it all."

That hasn't been a problem for 11-year-old Alden Mathieson, whose parents got him a PocketCard because they thought it was safer than cash. "My feeling is that cash in hand goes out pretty fast," says Alden's mother, Wendy Shapiro. "He spends less when it's on the card."

Alden dazzles store clerks by pulling out his card to pay for toys or video-game rentals. The card is funded by cash he gets from birthday gifts and doing odd jobs for neighbors. Alden started with about $130, and keeps his balance between $80 and $120, says his mom. "He doesn't want to let it get down to zero." But then, Alden "had pretty good instincts to start with," she adds.

Bingo. It seems to me that kids, especially teens, who are good cash managers are good candidates for a PocketCard. (I may even get one for my son.) But no technology can substitute for knowing your children's instincts and laying a good foundation when they're young. Don't underestimate the value of crumpled dollar bills.